But building societies and finance houses and life insurance business volumes continued to grow at a healthy pace, the latter for a fifth consecutive quarter, according to the report.

Financial services firms expect growth to rise in the next three months but to remain below the strong growth seen earlier in the year.

Optimism about the overall business situation was stable, after more than two and half years of continuous improvement.

Strong competition seems to have had a knock-on effect on income growth for financial services firms, bearing down on fees and commissions as well as net interest, investment and trading income.

But with average costs under control, profitability grew at a healthy pace, albeit somewhat slower than in recent quarters.

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Rain Newton-Smith, CBI Director of Economics, said: “The winds of volatility blowing through global markets have left a clear mark on the financial services sector, impacting business volumes and investment intentions, particularly in investment management and securities trading.

“Nevertheless, building societies’ business volumes have rebounded,and with financial sector costs under control, profitability is in good shape. At the same time, investment in IT is set to increase as firms aim to improve efficiency.

“Slower growth in China and other emerging markets has had a knock-on impact on confidence in the world economy, with the Federal Reserve holding off raising interest rates in the United States.

“It’s interesting to see that the sector is waking up to the impact of FinTech. Firms will need to look carefully at their operations and put strategies in place in order to profit from or protect against the impact of new technologies.”

Numbers employed dropped slightly on the previous quarter, but remained higher than was seen at the beginning of the year.

With profit growth tipped to slow further, firms do not envisage any increase in headcount over the coming three months, but will continue to spend more on training.

A record two thirds of firms believe that competition is likely to come from new entrants to the sector, and the rise of Financial Technology (or FinTech - software providing financial services) could have an impact on firms’ profitability.