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United Kingdom’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

Economic output in the UK slowed at the end of 2018 to 1.4%, the lowest rate since 2011.  This slowdown was driven by a contraction in business investment and a widening net trade deficit which dragged down output from stable household consumption, supported by annual wage growth of 3.5 %, and expanded government spending.

The annual rate of consumer price inflation, having peaked in recent years at 3.1% in late 2017, stood at 2.1% at the end of 2018, just above the Bank of England’s target. The official bank rate was raised from 0.5% to 0.75% during 2018 and has remained at that level since, alongside a static quantitative easing amount of £435 billion. The value of sterling fell during 2018, with its effective exchange rate index 2% lower at the end of the year.

The unemployment rate continued to fall during the year to 4%, while employment hit a record high of 76.1%. The household saving ratio of gross saving to total disposable income was 4.8% in the final quarter of 2018, maintaining an historically low trend over the past two years.

Consumer and business confidence measures weakened during 2018 amid continued uncertainty associated with the economic and trading impacts of the UK’s proposed withdrawal from the EU. In 2018, the UK had a trade deficit in goods of £138.8 billion, partially offset by a trade surplus in services of £106.5 billion. The total net trade deficit of £32.3 billion had worsened by £8.4 billion during the year.

Technology and innovation continued to facilitate new entrants into the banking and payments sector in 2018.  Further market developments, such as the Payments Services Directive II and Open Banking (facilitating the sharing, with customer consent, of transactional account information with service aggregators to allow recommendations for alternative service providers, or to allow account-to-account payment without an intermediate card or payment service) is opening the market further to increased competition.

Almost 40 billion payments were made in the UK in 2018, with consumers responsible for nine payments out of every ten, the majority of which are made spontaneously.  Plastic card usage continues to rise, particularly with the rapid increase in the use of contactless card acceptance at retailer terminals.  Virtually all the UK population hold a debit card linked to a personal current or deposit account and two‑thirds hold a credit card.   Contactless card payments are used by two‑thirds of UK adults and accounted for 19% of all payments in 2018 – a proportion that is forecast to double in the next decade as ‘payment-tapping’ and the holding of cards in smartphone wallets becomes more commonplace. By 2024, debit cards are forecast to account for half of all payments in the UK, as the use of cash continues to decline – as a proportion of all payments it has more than halved, to 28% in the past decade.

The increasing uptake of remote banking services is leading to a natural consolidation of traditional bank branches, although through an industry arrangement with post offices, there are still some 20,000 physical locations where people can carry out banking transactions.

There are some 360 monetary financial institutions (MFIs) in the UK.  Just under half the sector balance sheet (47%) is held in GBP, 20% in EUR and 33% in other currencies. By country of ownership, 50% of the sector balance sheet reflects UK ownership, 15% reflects EU ownership and the remaining 34% reflects institutions owned in the rest of the world. Total balance sheet assets of €9 trillion represent the largest banking sector in the EU and the fourth largest worldwide. The regulatory capital ratio of the sector improved again, to 21.4% at the end of 2018, with Core Equity Tier 1 capital of €488 billion, slightly higher than a year earlier.

MFI credit growth in the UK increased in 2018 – annual growth was 4.8% for private non‑financial businesses and 3.2% for the household sector. Whilst growth in the former sector had increased from 3.7% at the end of 2017, growth in the household sector was slowing noticeably, with annual secured lending growth at 3.4%, credit card lending at 5% and other unsecured household credit (personal loans and overdrafts) growth at 1.9%.  All these growth measures were significantly lower than a year earlier.

Households’ deposits with MFIs grew by 2.8% in 2018, a rate virtually unchanged from the previous year and which, alongside reduced credit growth, indicated tightening pressures on household budgeting. Deposits held by private non-financial businesses expanded by only 5.4% in 2018 and has slowed significantly since, compared to the annual growth rate of 7.7% a year earlier, as businesses experienced lower activity, cashflow and profit retention.

In terms of cross-border financial services, the UK banking sector has historically generated a balance of payments trade surplus. In 2017, the latest available figures, the surplus was €30.4 billion, reflecting one quarter of the UK’s total trade surplus in services. 60% of the banking sector surplus is generated from trade with Europe, 27% with the Americas and 13% elsewhere.

The UK banking sector contributes 5.4% of UK tax revenues, a greater proportion than its 4.1% share of UK gross value added. The total tax contribution of the sector was some €40.8 billion (equally split between UK-headquartered banks and foreign‑headquartered banks), comprising €18.1 billion in employment and other taxes collected and €22.7 billion in corporation and other taxes borne. The sector employment has reduced over recent years but is still almost 390,000 people – some 1.6% of the total UK workforce.

Contributor: David Dooks