340px-The_City_Of_LondonUK financial services firms are increasing their spending on IT but may still not be doing enough to fend off competition, according to the latest survey of the sector from the Confederation of British Industry and PwC.

The report says that UK financial services firms saw strong growth in business volumes in the three months to September, with profits rebounding and hiring on the up. 60% of firms said that business volumes were up, while 11% said they were down, giving a balance of +49%, the strongest reading since 2007 (+51%)

Looking ahead to the next quarter, 63% of firms expect business volumes to increase, while 8% say they will decrease, giving a balance of +55%, which is the strongest expectation for growth since June 2010 (+63%)

Kevin Burrowes, UK financial services leader at PwC, said: “There is an increasing focus on new services and technology-enabled growth. Time will tell if established banks are underestimating their need for digital capabilities as we see a continued influx of new entrants without the chains of legacy systems, meaning that tougher competition is an increasing concern. There are hints of a new ‘war for talent’ and tighter monetary policy in 2015 could also pose a challenge.”

Looking ahead, firms say statutory legislation/regulation and competition are likely to be the biggest constraints on business over the coming year, while concerns about level of demand have dropped off sharply.

Investment intentions are mixed with more spending slated on marketing and information technology for the year ahead, but investment in vehicles, plant and machinery is still due to be scaled back.

“The CBI’s numbers confirm what our customers have been telling us for a little while now,” said Anthony Duffy, director of retail banking at Fujitsu UK & Ireland. “The financial institutions with which we work see that things are getting better, with both the economy and the sector recovering following the long recession of the past seven years. This positive sentiment is also supported by Fujitsu’s own recent research. Our study of industry financial sector attitudes and developments revealed that banks are moving beyond cost cutting and looking, once again, at growth opportunities. No less than 28% of IT budgets within financial services organisations are now being invested in innovation.”

The main reasons for investment are cited by the CBI/PwC survey as statutory legislation and regulation (70%), provision of new services (68%) and increased efficiency/speed (44%).

Regulation was also cited as the main factor constraining growth by 80% of respondents, up from 70% in June.

Martin Ashall, chief technology officer at CA Technologies, said that the growth of apps is fuelling a boom in software jobs in the FS sector: “Technology has been disrupting businesses for decades but apps have upped the game further. We now operate in the era of application economy, where organisations need to increasingly think and act like software companies in order to stay ahead of competition. Financial services sector has embraced this challenge very well over the past few years, with majority of banks releasing numerous applications that help win over customers and fuel growth – according to recent research conducted by Vanson Bourne and sponsored by CA, over half of financial services companies have released three or more external customer applications last year. As a result, software job growth in the sector has exploded over the last five years by as much as 72% and will continue to grow over the next years.