Banks and shops predict boom as economy gains

Britain’s tentative economic recovery has triggered a surge of optimism among the country’s banks even though their loans to companies fell in recent months.

That is the key finding of a major report out today from the CBI and PricewaterhouseCoopers, which chimed with similar improving figures on the retail sector.

Banks predict a boom in business volumes over the next quarter, having seen a subdued summer, while profitability is also likely to rise, respondents to the CBI survey said. The fall in activity with industry over the past quarter was dismissed as a “blip”.

Stephen Gifford, the CBI’s director of economics, said: “With optimism rising and jobs and profitability growing, this is an encouraging quarter for the financial services sector despite a fall in business volumes in banking. Firms are expecting positive momentum to carry into the next three months, alongside a strong recovery in business volumes, which will boost profits further.”

The CBI’s optimism is yet to be seen by many of its big company members outside the finance sector. Unilever last week triggered a widespread fall in share prices of consumer goods giants when it warned of weak sales in emerging markets and continued low growth in the developed West.

There may be further caution about the macro-economic picture this week in minutes from the last US Federal Reserve meeting and the IMF’s annual summit. The CBI made its habitual move to highlight the perils of regulating companies, with Mr Gifford warning: “Dealing with regulation is increasingly weighing on plans for business expansion.”

That plea came despite the fact that many of the country’s biggest financial services firms remain mired in scandals such as the mis-selling of PPI and interest rate swaps, Libor fixing, payday loan rip-offs, weak financial structures and, as emerged last week, alleged manipulation of the currency markets.

Meanwhile, the high street is starting to show signs of recovery although fashion sales have suffered from the warmer autumn compared with last year, according to new data. Shoppers steered clear of some of the big-name fashion brands, sending sales down 2.1% in September compared with a colder September last year, according to the BDO monthly sales tracker.

This was most recently typified by bell-wether John Lewis, which saw fashion sales slump 10% last week against the same week a year ago.However, non-fashion sales were up 3.7% with all areas apart from outdoor goods performing well.

It was revealed last week that mortgage approval levels hit a five-and-a-half year high in August, with retailers hoping to cash in on the extra business new homeowners offer. Homebase has said recently it was encouraged by the approval levels but that it typically takes six months for stores to see an increase in sales as a result of improved house market activity.

Carpetright had hoped for an increase in business from the mortgage approval stats, but issued a profit warning last week, saying not enough customers had been through its doors.

Don Williams, head of retail and wholesale at BDO, said: “Increasing job security is helping to encourage spending. The reality is that although consumers are still feeling the pinch, they are less worried about losing their jobs.”