City warns that growth will slow in first months of 2011

The City expects its growth to slow over the first three months of the year, the Confederation of British Industry warned today.

The CBI said a survey showed financial services business volumes rose in the three months to December but profitability did not increase as fast as expected.

The poll also found that numbers employed in the sector fell at the fastest rate for 17 years and that companies' concerns over worsening financial markets had increased.

"Activity in the financial services sector grew strongly over the second half of 2010 but firms see growth slowing over the coming three months, and expect another fairly moderate increase in profitability," said John Cridland, CBI director-general designate.

Financial services represents 8% of Britain's GDP but the sector has been hit by Ireland's economic slump and the European debt crisis.

Last month Lloyds Banking Group warned of a further hit from its Irish portfolio, while fellow part-nationalised lender Royal Bank of Scotland has also been hit by Dublin's debt problems.

The CBI survey said banks had experienced a sharp fall in profitability and expected a similar decline in the coming quarter.

It also said financial services firms — banks, building societies, insurers, trading houses and fund managers — had become more concerned about their ability to raise funds.