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United Kingdom’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

Economic output for the UK in 2019 was 1.3%, unchanged from 2018 and remaining at the lowest annual rate since 2011. Constrained output was driven by lower business investment and a widening net trade deficit, but also lower household consumption, reflecting 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 1.3% at the end of 2019, well below the Bank of England’s 2% monetary target. The official central bank interest rate rose to 0.75% during 2018 and remained at that level throughout 2019, alongside quantitative easing of €12 billion and €11.8 billion of corporate bond purchases. The value of GBP rose during 2019, with its effective exchange rate index 5% higher at the end of the year.

The unemployment rate continued to fall during 2019 to 3.8%, while employment hit a record high of 76.5%.  At the end of 2019, the household saving ratio of gross saving to total disposable income was 5.8%, the highest annual rate for three years.

Consumer and business confidence measures weakened during 2019 amid continued uncertainty associated with the economic and trading impacts of the UK’s proposed withdrawal from the EU. In 2019, 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 £30.5 billion worsened by £5 billion during the year.

Technology continued to facilitate innovation and invite new entrants into the UK banking and payments sector. Market developments 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.

Around 40 billion payments were made in the UK in 2019, 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 21% 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 card use is 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 more than halved, to 23% in the past decade.

Increasing consumer appetite for remote banking services is correlated with a consolidation of traditional bank branches, although through an arrangement with post offices, there were still some 20,000 physical locations where people could carry out banking transactions.

There are more than 360 monetary financial institutions (MFIs) in the UK. Just under half the sector balance sheet (49%) is held in GBP, 18% in EUR and 32% in other currencies. By country of ownership, 52% of the sector balance sheet reflects UK ownership, 15% reflects EU ownership and the remaining 33% reflects institutions owned in the rest of the world. Total balance sheet assets of €9.4 trillion represent the largest banking sector in the EU and the fourth largest worldwide. The regulatory capital ratio of the sector was stable at 21.3% at end of 2019, with Core Equity Tier 1 capital of €507 billion slightly higher than a year earlier.

MFI credit in the UK slowed in 2019 – annual growth for private non‑financial businesses reduced from 4.8% at end 2018 to 3.1%, while the household sector remained stable at 3.2%. Growth across the household sector was mixed, with annual secured lending growth unchanged at 3.4%, credit card lending slowing sharply, to 3.1% and other unsecured household credit (personal loans and overdrafts) growth at 2.9%.  Households’ deposits with MFIs grew by 3.9 per cent in 2019, an increase rate from 2.8% in the previous year and which, alongside reduced credit growth, indicated tighter household budgets. Deposits held by private non-financial businesses tightened noticeably from 5.4% in 2018 to 2.4% in 2019, as businesses experienced lower activity, cashflow and pressure on profits.

In cross-border financial services, the UK banking sector has historically generated a Balance of Payments trade surplus. In 2017 and 2018 (the latest available figures), the surplus was €31.8 billion, reflecting one quarter of the UK’s total trade surplus in services. The 60% of the banking sector surplus is generated from trade with Europe, 27% with the Americas and 13% elsewhere.

The UK banking sector contributes 5.5% of UK tax revenues, a greater proportion than its 4% share of UK gross value added. The total tax contribution of the sector was some €46.7 billion. Having been equally split between UK-headquartered banks and foreign‑headquartered banks in previous years, 2019 saw the balance tip towards UK-headquartered banks which accounted for 57% of the total. The tax contribution comprised €18.9 billion in employment and other taxes collected and €21.9 billion in corporation and other taxes borne. The sector employs more than 400,000 people – some 1.2% of the total UK workforce and 36% of the financial services sector.

Contributor: David Dooks