FINANCIAL services companies' profitability rose at its fastest rate for three years, spelling good news for firms in the south.

business volumes and optimism increased for the third quarter in a row, according to the study by the CBI and PricewaterhouseCoopers.

But PricewaterhouseCoopers' UK banking leader, John Hitchins, warned: "Optimism is tempered by concerns that spending growth is not sustainable.

"Although the outlook for jobs was better than for many surveys, pressure on costs will accelerate if volumes slow down, with institutions re-examining options such as outsourcing."

Business volumes rose in almost every business sector.

Fund managers and building societies experienced the fastest growth.

Only life insurers and insurance brokers saw business fall, with insurance brokers suffering their eighth successive quarterly fall.

Fund managers and securities traders enjoyed the greatest growth in profitability, while insurance broking was the only sector to record a fall. Over the past three months building societies and fund managers created new jobs at the fastest rate.

They are also the sectors with the strongest expectations for job creation over the next three months.

Overall the industry expects a small loss of jobs over the next quarter with banks in particular continuing to experience competitive pressures.

CBI chief economist Ian McCafferty said: "Rising share prices and the recovery in the wider economy at home and abroad are underpinning the continuing revival in financial services.

"Both sentiment and activity are now on a clearly rising trend as the recovery takes hold."