Business confidence has fallen more sharply in the financial services sector than at any time in the past three years, the Confederation of British Industry (CBI) has reported.

But a quarterly survey published with PricewaterhouseCoopers (PWC) suggested insurance firms were enjoying business growth and taking on extra staff until the impact of the US terrorist attacks hit the industry.

The vast majority of responses from the insurance sector were returned before September 11.

Brokers reported some of the strongest rises in business volumes. Despite a background of falling employment in the wider sector, brokers and general insurers reported significant rises in staff levels.

The survey showed 47% of respondents were less confident about the overall business situation than three months previously. Confidence was at its lowest since September 1998, with the level of business further below normal than in any survey since December 1997.

PWC financial services partner John Hitchens said: "A number of sectors, particularly banks, building societies and insurers actually enjoyed strong performances in the last quarter but the pessimism about the future is shared across the industry and can only have been worsened by recent events in the US."