The survey, was conducted with PricewaterhouseCoopers and had 73 respondents, showed that a balance of 23% of firms saw profitability fall in the last quarter, compared with a balance of 47% reporting declines in March.

Firms saw incomes continue to fall, but also at a reduced rate and businesses expected fees, commissions and premiums to stabilise in the coming months.

But McCafferty warned: “Although demand looks like it is beginning to recover, it is doing so from a very low base. We can still expect lower profitability, significant job losses and cuts to investment in the coming months.

“The rising levels of bad debt are a further worry for the industry.”

Staff levels continued to fall sharply, although at a slower rate than in the previous quarter, with a balance of 33% reporting cuts to their workforce in the last three months and 28% anticipating a reduction in the coming quarter.

Mr McCafferty said the situation was particularly challenging for banks, which saw business volumes fall at their fastest rate since 1991. But firms in this field expected volumes to pick up in the coming months, while declines in employment are also forecast to ease.

Meanwhile general insurers’ optimism grew, with predictions of rising business volumes.

There is further good news with a new report from financial services provider Morgan Stanley, which predicts 35 to 40 companies to float in Europe over the next two years.