INVESTMENT planning in the financial services sector is still being hampered by Brexit uncertainty, despite expectations of a return to growth in the coming months, a new study suggests.

Profits in the sector are set to “stabilise”, a survey by the CBI and PwC of almost 100 companies indicated.

Optimism rose just before last month’s General Election, at the fastest pace since the summer of 2015, the report found.

It said improvement was driven by investment management, insurance broking and general insurance, but was flat in banks and building societies.

Profits in the sector continued to fall at the quickest pace in a decade, according to the CBI and PwC research.

Rain Newton-Smith, the CBI’s chief economist, warned that Brexit “continues to drag on” investment plans.

She commented: “It’s great that optimism has risen following four-and-a-half years of dire sentiment, with financial services firms also suggesting that an end to falling business volumes and profitability may be in sight.

“However, the sector isn’t quite out of the woods yet. Against the backdrop of another fall in business and profits, Brexit uncertainty continues to drag on investment plans, and concerns over labour shortages have spiked.

“As the UK begins a new future outside the European Union, the Government must do everything it can to support and stimulate one of the UK’s most globally competitive sectors, so that expectations of an upturn can come to pass – both over the next quarter and beyond.”

Andrew Kail, head of financial services at PwC, added: “The stirrings of optimism represent a significant turnaround given the flat and falling optimism that has beset the past four years.

“An uptick in hiring, investment in systems, and better profit expectations for the first three months of the new year are driving the positivity in the sector, following the general election.

“However, this year in particular, firms will need 20/20 vision in order to maximise performance. Not least as there is still work needed to bring clarity on Brexit transitional arrangements.”