United Kingdom

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United Kingdom’s banking sector: Facts & Figures

The UK GDP grew by 2.0% in 2016, expanding faster than the 1.7% growth level seen in 2015. Compared to other major economies, the UK economy grew faster than the US (1.9%), euro area (1.7%) and Japan (1.7%) in 2016.  The Bank of England forecasts GDP growth of 1.9% in 2017 and 1.7% in 2018.

Output growth in 2016 was fuelled by consumer-focused retail spending. Households’ purchasing power in 2016 was underpinned by higher consumer confidence and an improving labour market. The unemployment rate fell in Q4 2016 to 4.8%, and has continued to fall since, while the employment rate has risen to the highest rate in history at 74.5%.  However, consumer spending grew faster than wages, which weakened to 2.6% in Q4 2016.  As a result, the personal savings ratio declined to 5.3% in the last quarter of 2016, down from 6.5% at the end of 2015.

For much of 2016 and particularly following the referendum vote to leave the European Union, business confidence fell, as businesses anticipated slowing activity. Business investment declined substantially from an annual growth rate of 5.1% in 2015 to 1.5% in 2016. Future investment plans will likely reflect businesses’ assessment of the post-Brexit economy and the anticipated increase in operating costs from depreciation of the exchange rate and rising inflation.

The UK currently runs a trade deficit in goods and services of £8.6 billion. The level of trade in services as a share of UK’s total trade has been rising and accounted for 44% of total trade in 2015.  UK services exports to the EU grew by 7% on average each year between 2000 and 2015, while exports of services to non‑EU countries grew slightly more, by 7.3% on average. UK trade in services is driven by financial services’ exports, which accounted for 22.5% of the total in 2015.

Consumer price inflation increased by 1.6% in 2016, as global food and energy prices began to recover from 2015 levels and the sterling effective exchange rate depreciated, falling by more than 20% from its November 2015 peak. The Bank of England expects inflation to rise above target, to 2.7% in 2017, followed by 2.6% in 2018.

With more than 350 monetary and financial institutions in total, the UK sector hosts more foreign banks than any other financial centre. The UK is the fourth largest banking sector in the world and the largest in Europe. Holding assets of €9 trillion at the end of 2016, the UK is the largest centre in the world for cross‑border banking.

More than half (57%) of the aggregate balance sheet relates to the banking activities of UK residents, while almost half (45%) of banking assets are held by non‑UK banks.

Domestic banking has historically been concentrated, with the main high street groups accounting for around two-thirds of retail banking activity. Those mainstream organisations operate around 150 million current and deposit accounts for households.

Payment cards have increased rapidly over the last decade with 60 million credit cards and 99 million debit cards in issue which can be used at 70,000 automated teller machines.

There are around 20,000 locations across the UK where people can carry out financial transactions at a banking counter. Banks made increasing use of digital channels to communicate with their customers in 2016, as customer preferences also shifted to preferred alternative channels for managing their finances and making payments. Innovation is playing a significant role, as banks fitted 536 branches with video banking facilities in 2016, an increase of 23% in a year. Two banking groups had 47 mobile branches in 2016 to reach areas with no permanent branches.

Customers’ use of mobile banking apps soared by 354% from 2012 to 2017, while interactions through branches, online banking services and contact centres declined by 39%, 11% and 17% respectively.

The provision of monetary financial institutions (MFI) credit to the UK economy at end-2016 showed outstanding sterling lending of GBP 568 billion to other (non-MFI) financial companies, GBP 377 billion to UK non‑financial companies and GBP 1,313 billion to UK households.  These components of credit all saw growth in 2016, with unsecured lending to households growing by 9.5%, secured lending grew by 3.6% and lending to non‑financial companies grew by 3.2%.

The cost of banks’ wholesale debt funding decreased during 2015-16 as spreads narrowed and, with a lower countercyclical capital buffer and the removal of central bank reserves from leverage ratios, banks restructured their balance sheets to mitigate upward pressure on funding costs.

Banks in the UK employ more than 400,000 people who pay over GBP 18 billion annually in employment taxes, around 10% of the national total.  Banking output is the equivalent of around 4% of the UK’s GDP, and, is a significant contribution to the UK’s balance of payments. The export of financial services by the MFI sector reflects more than half of UK net exports (some GBP 20 billion in 2015).