LONDON (Reuters) - Financial services firms are more gloomy than they have been for 17 years in regard to profit growth in the next quarter, according to a leading survey released on Monday.

Financial firms expect business volumes, income and profitability to all fall in the next three months, as the credit crunch in global markets in recent months feeds through.

The quarterly survey by the Confederation of British Industry (CBI) and consultants PricewaterhouseCoopers (PwC) showed a balance of 14 percent of firms expect a decline in profitability in the fourth quarter, the weakest expectation since September 1990.

The survey showed profits held up in the third quarter better than firms had expected, however, and a balance of 14 percent of firms reported a pickup in profitability, the highest since June 2006.

"There's a stark contrast between the respectable growth enjoyed by the sector over the past quarter, and the difficulties it anticipates in the months ahead," said Ian McCafferty, CBI chief economic advisor. He said the credit crunch is expected to "put a squeeze" on businesses.

A net 11 percent of firms expect business volumes to fall in the fourth quarter, which is the first negative expectation for over three years and would end a year of robust growth.

A net 23 percent of companies said volumes rose last quarter, led by demand from overseas customers and private individuals. Business with financial institutions fell for the first time in three years, however, reflecting a drop-off in demand due to the credit squeeze, the CBI said.

Falls in income from fees, commissions and premiums and from net interest, investment and trading are predicted by firms for the fourth quarter.

Companies still plan to take on more staff and training, marketing and IT investment plans are also holding up, the survey showed.