The quarterly poll also found that sentiment among FS firms fell, as profitability contracted at a steep rate over the period. Despite the weakness in business conditions, headcount in the sector rose for the first time since June 2024.  

Looking ahead, FS firms expect business volumes to decline at a slower, but still firm, pace next quarter.

Over the year ahead investment in IT is expected to improve to their strongest in nearly five years, but over half of firms cited inadequate net return as a likely factor to limit overall capex plans – the highest proportion since September 2022.

Louise Hellem, CBI chief economist, said: “The political transition underway must not slow delivery of the government’s financial services growth and competitiveness strategy at a time when activity has deteriorated and firms are facing a more uncertain outlook.

“Maintaining momentum on reforms – including continuing work with the FCA and PRA to deliver a more growth focused regulatory framework – will be essential to strengthening the UK’s competitiveness and supporting investment.

“The forthcoming Mansion House speech provides an important opportunity to boost confidence in the reform agenda by demonstrating progress already made and setting out clear next steps for delivery.”

Separately, a survey by the British Chambers of Commerce found that companies are being “taxed out of existence”, leading to the lowest appetite to spend money on big projects since the end of the Covid-19 crisis.

Researchers at the BCC said the proportion of businesses that planned to raise investment had dipped to 17% in the past three months, down from 21% in the previous three months.

Tens of billions of pounds of tax rises on businesses and soaring operating costs have stifled capital spending, said the group.

One business owner told the BCC that they were “being taxed out of existence” and another said that their business was suffering “from higher taxation, increased labour and energy costs [that are] stifling growth and investment.”

David Bharier, deputy director of economics and insights at the BCC, said: “Government policy needs to pass a “growth delivery test”.

“Each proposal should start from the question of exactly how it will cause firms to increase investment, exports, hiring or expansion.”