The last three months of 2018 saw total business volumes in the UKs financial services sector fall for the first time since September 2013, a survey has found.
General insurers and investment managers also reported a fall in profitability, with the latter experiencing the steepest decline in business activity since the financial crisis.
Profits across the sector as a whole remained flat for a third successive quarter, although these are expected to fall over the next three months for the first time since 2016.
Rain Newton-Smith, chief economist at the Confederation of British Industry, which carried out the research, said the "persistent weakness in optimism" was a warning of things to come.
"Financial services are a bellwether for the wider economy," she continued.
"A combination of macroeconomic and Brexit uncertainty, regulatory compliance and global market volatility are taking a toll on the UK's financial services sector."
Despite the deterioration in expectations, the survey found that insurers bucked the trend and experienced an expansion in business volumes in the final quarter of 2018.
It was also found that financial services firms expect to increase their headcount over the next three months, while investment intentions for 2019 remain "broadly stable".
Efficiency and replacement are seen as being among the main drivers of investment, while the regulatory environment is considered the biggest constrain on expansion.
Banks, insurance brokers and finance houses were most dissatisfied when asked whether regulators are keeping pace with digital innovations to help support regulatory compliance.
However, macroeconomic uncertainty is seen as the greatest challenge facing the sector as a whole for the year ahead, particularly for banks, general insurers and building societies.
"UK financial services firms looking to prosper in 2019 should concentrate on issues they can control," said Andrew Kail, head of financial services at PwC, which co-produced the research.
"Most importantly, by focusing on clear strategies for delivering value through products and services, maximising the efficiency of delivering these, keeping operating costs under control, and using technology to augment the quality and efficiency of all their activities."