Optimism among financial services companies grew by the strongest level in five years between December and March, the CBI said today.

The latest quarterly survey of the industry, published by the CBI and PricewaterhouseCoopers, showed business volumes and profitability rose sharply for the fourth consecutive quarter.

Asked whether they were more optimistic about their situation than three months ago, 51% said they were, with 7% less confident. The balance of plus 44% compared with plus 29% in the December survey.

Doug Godden, CBI head of economic analysis, said the survey showed firms confident about demand prospects, although he added that the full impact of the Madrid bombings remained to be seen.

Mr Godden said: ''A year of solid business growth, the revival in the stock market last year and growth in the wider economy have given financial services firms a substantial boost.''

Business volumes rose across financial services but there were some sharp contrasts between sectors with the strongest growth being seen among general insurers, fund managers and building societies. Only slight growth was recorded by banks and insurance brokers.

Profitability grew fastest among fund managers, securities traders and general insurers, while insurance brokers suffered the biggest falls, the CBI said.

The biggest increases in employment were among fund managers, general insurers and securities traders. Those were also the sectors with the strongest expectations for employment growth over the next quarter.

Job cuts had been expected in the first quarter of 2004, but instead employment increased, while expectations for job creation over the next three months stood at the strongest level for four years.