Financial firms stave off IT budget cuts

Organisations in Britain’s financial services sector will cut all types of capital spending over the next three months except IT, where its role of eking efficiencies out of the business will stave off the axe.

In its latest reading of the London-dominated sector, the CBI and PwC said end-users would scale back spending on buildings, land, vehicles and machinery so their IT investment plans could proceed.

On a sub-sector basis, building societies emerged as the biggest IT spender, with more cash than a year ago allocated for both systems and applications, typically under a strategy to retain clients.

But the overall upturn in IT investment, even for the bullish building societies, appears less than sustainable once the wider findings from the accountant and the business group are factored in.

They show that over the next three months financial firms as a whole expect growth to slow and, for the first time in two years; they foresee no improvement in profitability.

Cost-cutting is “taking priority” as a result, PwC said, with financers’ operating costs and staff numbers expected to fall – potentially spelling the elimination of up to 8,000 jobs in the next quarter.

Group banking leader Andrew Gray reflected: “Despite a short-term increase in operating costs, as banks continue to invest in IT efficiencies and marketing to protect their market share, this is unlikely to last.

“Many banks continue to control costs aggressively and as a result expect further headcount reductions.”

Uncertainty about future demand and prospects for the business were most commonly blamed for limits on spending, as was an inadequate return on investment. 

“After a torrid couple of months on global financial markets, the mood has clearly darkened,” Ian McCafferty, chief economic adviser to the CBI said.

“Uncertainty about future demand, worries about the global recovery and shifting regulatory sands are weighing on sentiment.”

In fact the compliance burden, in the shape of MiFID (Market in Financial Instruments Directive) and EMIR (the European Mark Infrastructure Regulation), could increase financial employers’ operating costs even further, PwC said.

Yet not dissimilar to the building societies surveyed, financial houses are so far unmoved by the prospect of mounting running costs, saying they plan to invest more in IT in the year ahead relative to the past 12 months.