Confidence Dips Among UK Financial Services Leaders Amid Geopolitical Uncertainty
Key Insights
Confidence in profitability for Q2 2025 fell to 89%, a 5-percentage point decrease from Q1 2025 (94%).
Despite the profitability dip, overall business growth confidence remains stable, with approximately 90% of leaders feeling upbeat.
Why this matters:: Heightened geopolitical instability is directly impacting revenue forecasts, forcing financial institutions to re-evaluate strategies and increase spending on resilience rather than solely focusing on efficiency.
Key concerns driving sentiment include inflation (48%), interest rates (41%), cost pressures (36%), and significantly, rising geopolitical risks (cited by nearly 30% as a top challenge).
Over 60% of firms are investing more in risk-proofing against geopolitical events, allocating an average of 8% of total revenues this year, expected to rise to 10% by 2030.
In-Depth Analysis
The latest UK Financial Services Sentiment survey from KPMG reveals a nuanced picture. While the outlook for general business growth in Q2 2025 holds firm, the shadow of global instability looms large over profit expectations. Leaders identify a volatile mix of inflation, interest rates, and cost pressures as major challenges, but geopolitical risks have markedly risen in prominence over the past year.
This increased risk perception is translating into tangible action. Financial firms are dedicating significant resources – averaging 8% of total revenue currently and projected to increase – towards bolstering their defenses. Areas like business continuity planning and cyber resilience are receiving heightened investment as firms navigate what Karim Haji, Global and UK Head of Financial Services at KPMG, describes as 'the most volatile geopolitical and economic environment since 2008'. He notes that while risk-proofing investment pressures revenues, it is crucial for building resilience and unlocking growth opportunities amidst uncertainty.
Interestingly, despite these headwinds, optimism regarding the UK government's sector-specific plans is growing. Confidence in the Chancellor's strategy to 'regulate for growth' and enhance competitiveness has jumped 15% since Q1, with 85% of leaders now believing these plans will be effective. There's increased belief that these measures will attract foreign investment and boost the UK's standing in sustainable finance and fintech. However, concerns about potential tax increases and broader economic challenges persist. The long-term view remains positive, with most leaders confident in the UK's ability to maintain its position as a global financial hub.
FAQs
Why has confidence in profitability fallen if the growth outlook is stable?
While overall business activity might remain steady, leaders anticipate that escalating geopolitical events (like global tensions, cyber threats, and economic headwinds) will negatively impact revenues and increase operational costs, thus squeezing profitability.
What are financial firms actively doing in response to these geopolitical risks?
They are significantly increasing investment in risk-proofing measures. This includes allocating a larger portion of their revenue (average 8% now, rising later) towards enhancing cyber resilience, improving business continuity planning, and generally strengthening their ability to withstand external shocks.
Is the UK still considered a leading global financial centre despite these challenges?
Yes, according to the surveyed leaders. Nearly eight in ten are confident the UK will maintain its global hub status over the next three years, and six in ten believe the UK is more investible now than five years ago. Optimism is also rising regarding government plans to boost competitiveness.
Key Takeaways
Who This Affects Most:: Financial institutions, investors, businesses interacting with the financial sector, and potentially consumers through indirect economic impacts.
How to Prepare:: Businesses should assess their own exposure to geopolitical risks and review contingency plans. Investors should stay informed on how financial firms are managing resilience investments alongside growth strategies. Expect continued market focus on stability and risk management.
Key Summary:: Geopolitical uncertainty is pressuring UK financial sector profitability, driving significant investment in resilience. While growth outlooks are stable, and faith in government strategy is rising, economic headwinds remain a concern.
Discussion
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Sources & References
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