FINANCIAL services companies today reported a record drop in income and a sharp fall in business levels.

A survey by the CBI and PricewaterhouseCoopers said the industry was cutting jobs at its fastest rate since 1993 in a bid to reduce costs and offset steep falls in profitability. Firms had also cut back severely on investment.

Some 9% of firms replying to the survey said volumes rose during the three months to early March while 56% said they fell. The resulting balance of minus 47% marked a sixth quarter of steep declines and was worse than firms had expected.

A balance of 47% of firms reported a decline in profitability – representing a slight improvement on December’s record drop. A further slowing in the decline is expected over the coming three months.

Some 53% of firms reported a fall in fee, commission and premium incomes, while a balance of 54% saw falls in net interest, investment and trading incomes.

Further falls in both measures are forecast over the next three months.

Business was lost in all customer categories, although the rate of fall in volumes of business slowed for all customers except overseas customers.

Firms expect volumes of business with industrial and commercial firms and private individuals to contract again over the next three months, though at a slower rate.

Business sentiment worsened – with a balance of 34% of firms saying they were less optimistic about the overall situation in the financial services sector than they were in December.

A balance of 40% of firms said they had cut total operating costs – with staffing costs falling as a proportion of all costs by their fastest rate since December, 1993.

Investment intentions for land and buildings in the next 12 months are at a record low while spending on vehicles, plant and machinery is set to fall at its fastest rate since mid-1992.

For the second survey in a row, firms highlighted uncertainty about demand as the greatest obstacle to investment.

Some 45% of firms think there is a high likelihood of financial market conditions worsening further, while all those polled thought it would take more than six months before normal market conditions resume.

Two-thirds of respondents thought that the UK had become a less competitive financial services centre as a result of the credit crunch.

Ian McCafferty, CBI chief economic adviser, said: “Conditions remain exceptionally tough in the financial services sector, and have not been helped by equity markets having fallen further since our last survey in December.