The strength of the financial services sector will be crucial to the continued well-being of the UK economy, according to an independent report produced for the British Bankers' Association (BBA).
The report says the financial services sector has achieved extraordinary levels of productivity and growth recently in comparison to other sectors, with productivity increasing three times the rate of the UK economy as a whole.
Coupled with the sector’s activity in the international markets, it states the combined balance of payments surplus this generates is increasingly providing much-needed support to the economy by offsetting the burgeoning trade deficit from the UK manufacturing sector.
This contribution by financial services is predicted to become even more important as the goods side of the economy begins to falter further.
Looking into the future, the report predicts the international business of banks in the UK will continue to grow strongly and says the financial services sector offers the best hope of effective expansion into the rapidly growing markets of Asia.
With a strong and profitable banking industry driving growth in the UK, it also identifies the UK’s financial services sector has established the UK as the world leader in generating net investment income from abroad.
But it warns the regulatory and tax environment is a major factor in the ongoing success of the industry and highlights that any substantial change in this could have a severe detrimental effect.
Independent economic consultant Christopher Smallwood, who produced the report in association with Lombard Research, says: “Without the financial sector’s contribution, the economy would be facing a difficult period of adjustment which would certainly involve a substantial drop in the international value of sterling and quite possibly higher interest rates to contain the inflationary consequences of this.”
Ian Mullen, chief executive of the BBA, states: “If consumers are to continue benefiting from the strong and stable economic conditions that UK financial services – and specifically banks – are providing, which in turn provide benefits across pensions, GDP contribution, corporation tax, employment etc., then this country needs to focus its resources on those sectors that are most productive.
“In particular, this means ensuring the right business environment for financial services if the economy is to stay on track.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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