Confidence about future profitability has dipped among financial services leaders, as over 60% are investing more of total revenues in risk-proofing against current geopolitical events.

Whilst around nine in ten leaders are upbeat about overall business growth for the second quarter of 2025, confidence about future profitability fell by five percentage points compared to Q1 2025.

Leaders are investing on average 8% of total revenues this financial year on risk-proofing their business and forecast a steady increase over the next five years. More than a quarter expect to invest more than 15% of total revenues by 2030.

Despite geopolitical challenges, there is growing optimism among leaders about the sector’s future, particularly when it comes to the Government’s plans to drive regulatory reform and boost competitiveness.

Financial services leaders are less confident about profitability in the second quarter of 2025 compared to the first quarter, as they expect geopolitical events to increasingly weigh on revenues over the next five years, according to KPMG’s latest UK Financial Services Sentiment survey.

The quarterly poll, which tracks sentiment among over 150 leaders working across the sector, found that confidence about profitability dipped by five percentage points from 94% for Q1 to 89% for Q2. However, confidence about overall business growth has remained stable, with around nine in ten leaders continuing to feel upbeat about growth prospects for Q2 2025.

Despite the dip in confidence about future profitability, leaders are still more upbeat than they were twelve months ago, with 89% feeling upbeat about the coming quarter compared to 87% in the same period last year.

Most leaders are going into the second quarter concerned about inflation pressures (48%), interest rates (41%) and cost pressures (36%). While these issues dominate as the biggest challenges, geopolitical risks have risen as one of the biggest challenges over the last 12 months. Almost 30% of leaders cite geopolitical risks as one of the biggest challenges facing their business in Q2.

As a result, six in ten are investing more of total revenues in risk-proofing against current geopolitical events. They expect to invest on average 8% of total revenues this financial year, rising to an average of 10% by 2030. More than a quarter (28%) expect to invest more than 15% of total revenues by 2030 in areas such as business continuity planning and cyber resilience.

Karim Haji, Global and UK Head of Financial Services at KPMG, commented: “We are in the most volatile geopolitical and economic environment since 2008 and the stability that the sector thrives on is in short supply. So, it’s encouraging to see most leaders maintain a positive short-term outlook, supported by the uptick in services sector growth reported in March. But volatility is putting pressure on revenues, and we can expect this to be a long-term trend."

“The most significant threat to future growth and lower inflation is the fragile state of geopolitics, shifting the focus of investment from efficiency to resilience."

“This will continue to intensify for financial services firms as they grapple with the unavoidable challenges of heightened global tensions, cybersecurity threats, the knock-on effects of China’s slow growth and persistent economic headwinds driven by the rise of geopolitical risks."

“While investment in risk-proofing is going to increasingly put pressure on revenues, if done in the right way, it will not only drive a better understanding of geopolitical risk exposure to inform business preparedness and response planning but will help firms achieve both resilience and opportunities for growth.”

Despite the challenges facing leaders, optimism about the sector’s future has grown, particularly when it comes to the Government’s growth plans for the sector. Confidence in the Chancellor’s plans to ‘regulate for growth’ and launch a Financial Services Competitiveness Strategy this year has risen by 15% over the last quarter. 85% of leaders are now confident that the Chancellor’s plans will boost growth and competitiveness in the sector, compared to 70% in Q1.

Leaders are also more confident that the Government’s plans will help attract foreign investment into the sector, and enhance the UK’s position as a leader in sustainable finance and fintech compared to the last quarter.

Those with lower degrees of optimism in the Government’s plans highlighted challenges related to Budget decisions such as tax increases, and economic challenges.

Looking further ahead, almost eight in ten leaders are confident that the UK can maintain its position as a global financial hub over the next three years and six in ten believe that the UK is more investible today than five years ago.

Karim concludes: “A key part of the Chancellor’s plan to kickstart economic growth is to cut the cost and complexity of regulation. We’re already seeing the Government act on this in financial services by folding the Payment Systems Regulator into the FCA, which may have instilled greater confidence among leaders that the country really is taking steps towards reform."

“Leaders want certainty and clarity, so reduced regulatory complexity is welcome. However, reversing regulation doesn’t come without risk and must be proportionate to preserve a safe and stable financial system, particularly in such a volatile world."

“Despite the rise in confidence of the Government’s sector plans, there are still concerns related to the impact of tax increases and economic headwinds on growth in financial services. So, leaders will want to see more detail on the Chancellor’s plans to achieve this and cement the UK’s position as a leading financial centre.”