- UK financial services report fastest turnaround in 30 years
- Strong activity driven by credit growth and resilient demand
- Middle East conflict and energy risks could cloud outlook
Britain’s financial services sector has staged a sharp recovery at the start of 2026, offering an unexpected lift to the UK economy after a weak end to 2025. Fresh data from the Confederation of British Industry shows banks, insurers and investment firms reporting stronger business activity, signalling a turnaround in UK financial services growth.
Nearly two-thirds of firms surveyed said their activity had increased, a clear reversal from a negative balance of 38 per cent recorded in December. According to the CBI, this marks the fastest improvement in sentiment since 1996, suggesting a notable shift in how firms are seeing the market.
The rebound comes at a time when the government, led by Rachel Reeves, has placed financial services at the centre of its growth plans. The sector has been described as the “crown jewel” of the economy, with policymakers keen to keep momentum going.
Growth returns, but margins tighten
The recovery appears to be supported by a mix of easier credit conditions and steady demand from households and businesses. John Cronin of SeaPoint Insights reportedly said improved credit availability and financial resilience on both sides of the market were helping to lift activity.
Banks, in particular, have benefited from higher interest rates, which have supported profits and pushed share prices to levels not seen since before the financial crisis. This is despite ongoing pressures, including a £8.5 billion (₹11 billion) compensation scheme linked to car loan mis-selling.
There are, however, signs that not everything is moving in the same direction. While firms are doing more business, profit margins are tightening. Competition and rising costs have narrowed spreads — the gap between lending and deposit rates — at the fastest pace in recent quarters.
At the same time, firms are beginning to invest more in technology, particularly in areas like artificial intelligence, as they look to stay competitive in a changing financial landscape.
Confidence returns, but risks linger
Sentiment across the sector has picked up for the first time since mid-2024, ending a long stretch of flat or falling confidence. Firms expect growth to continue in the coming months, though at a slightly slower pace.
Still, there is a sense that the recovery could face challenges. The survey, which closed on March 18, came shortly after tensions escalated in the Middle East. At that point, many firms may not have fully accounted for the longer-term impact of the conflict.
Alpesh Paleja from the CBI reportedly said the sector is still trying to understand how the situation will unfold, noting that financial firms sit “at the epicentre of volatile market moves”.
The Bank of England has also flagged risks, warning that higher energy prices linked to the conflict could push up mortgage rates, potentially cooling demand for loans.
For now, the picture is one of cautious optimism. Activity is up, confidence is returning, but the wider environment remains uncertain — and that balance could shift quickly depending on how global events play out.
