Finance firms' growth disappoints

The Canary Wharf business district of London November 13, 2009.

LONDON (Reuters) - Growth in Britain's financial sector fell short of expectations over the last three months, and most financial firms expect to mark time during the remainder of the year, according to a survey.

Thirty seven percent of finance firms polled by the Confederation of British Industry (CBI) and auditors PricewatherhouseCoopers reported a higher business volume in the three months to September, against 9 percent reporting a fall, giving a net balance of 28 percent.

But that was well below the balance of 63 percent that had expected an increase when polled in June, the CBI, Britain's biggest business lobby, said on Monday.

The financial sector is banking on flat growth in the fourth quarter, with a net balance of 24 percent of finance houses expecting volumes to expand at a similar pace.

"There is ongoing concern that prospective regulation may hold back business expansion in the coming year but financial firms have become more worried that weak levels of demand will dampen growth prospects," the CBI's chief economic advisor, Ian McCafferty, said in a statement.

The British government will next month unveil public spending cuts aimed at curbing a spiralling budget deficit, cuts which critics fear could also weigh on economic growth.

Britain's banks also face the threat of regulatory intervention as a result of a new probe into the sector by the Independent Commission on Banking, which got underway last week.

Business volumes rose in the third quarter for all categories of finance firmx apart from general insurers, which reported a small drop in activity, the CBI said.

Overseas clients posted stronger growth than any other customer group, and profitability rose for the fifth consecutive quarter, partly helped by a decline in costs, it added.

(Reporting by Myles Neligan; Editing by Greg Mahlich)