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United Kingdom’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

Economic output in the UK slowed in 2017, to annual GDP growth of 1.8%, the lowest level since 2013, lagging behind the US (2.3%) and the Euro-area (2.3%), though slightly ahead of Japan (1.7%).  The UK saw inflation rising through the year, real earnings remaining negative and productivity showing little improvement.

Consumer spending moderated in the year amid pressures from higher household costs.  The annual rate of consumer price inflation peaked at 3.1% towards the end of 2017, mainly driven by higher import prices from the depreciation of sterling which, despite improvement, remained around 15% below its late 2015 peak.  Real earnings failed to grow during the year, staying at an average negative rate of 0.3%.  Consistent with that, the household savings ratio of 5.2% points to a rundown of deposits alongside subdued borrowing.  Monetary policy indications from the central bank are for a gradual rise in interest rates over the next three years.

As household consumption moderated, economic growth rotated towards net trade, boosted by stronger exports as the business landscape was underpinned by consistent levels of confidence.  Through the year, manufacturing growth picked up and services output remained steady, but activity in the construction sector slowed.  Rising employment added to positive business sentiment, but confidence and activity did not translate into investment, which grew annually by just 1% as businesses became conditioned to the uncertainty surrounding the Brexit negotiations and broad macroeconomic consequences.

The latest available figures showed the total trade deficit widened to 2.2% of GDP in 2016.  Trade in services surplus reached a record high, with a surplus of £92.4 billion.  The expansion in services exports was primarily driven by increased financial services exports, rising from £52.2 billion in 2015 to £61.4 billion in 2016.  This contributed to a financial services balance increasing by £8.4 billion, to a record high of £50.8 billion in 2016, a growth of 20% from 2015.

2017 saw growth in the number of entrants into the banking and payments sector, led by technology and innovation.  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 of alternative service providers, or to allow account-to-account payment without an intermediate card or payment service) will open the market further to increased competition.  Payments volumes highlight the trends – nearly 40 billion payments were made in the UK in 2017, with consumers responsible for nine payments out of every ten, the majority of which are made spontaneously.  Payment card usage continues to rise – virtually all the UK population hold a debit card and two-thirds a credit card.   In 2017, debit cards overtook cash as the most frequently used payment method and are expected to grow more than any other payment method, as contactless payments become increasingly accepted by retailers and service providers.  Over two-thirds of UK adults used online banking and four in ten used mobile banking via an app on smartphone or tablet in 2017.  The increasing uptake of ‘banking on the move’ or remote banking services is leading to a natural consolidation of traditional 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 350 monetary financial institutions (MFIs) in the UK.  Just under half the sector balance sheet (48%) is held in GBP, 20% in EUR and 32% in other currencies.  By country of ownership, 51% of the sector balance sheet reflects UK ownership, 17% reflects EU ownership and the remaining 32% reflects institutions owned in the rest of the world.  Total balance sheet assets of £8 trillion represent the largest banking sector in the EU and the fourth largest worldwide.  The regulatory capital ratio of the sector stood at 20.5% at end of 2017, with Core Equity Tier 1 capital of £432 billion, slightly lower than a year earlier but consistent with a reduction in risk-weighted assets.

MFI credit growth in the UK in 2017 was 3.7% for private non-financial businesses and 3.8% for the household sector.  Within the latter, secured lending rose by 3.8%, credit card lending rose by 7.2% and other unsecured household credit (personal loans and overdrafts) rose by 5.5%.  Growth in households’ deposits with MFIs slowed in 2017, expanding by only 2.7%, less than half the annual growth rate a year earlier, while businesses’ deposits grew by 7.7% over the year.

In terms of cross-border financial services, the UK banking sector generates a balance of payments trade surplus.  In 2016, the latest available figures, the surplus was £22.4 billion, reflecting one quarter of the UK’s total trade surplus in services.

The total tax contribution of the banking sector to government finances was some £35.4 billion (UK-owned banks £18.1 billion, foreign owned banks £17.3 billion), representing 48% of banking sector profits and 5.4% of all government tax receipts in the 2016/17 tax year.  The sector employs more than 400,000 – some 1.6% of the total UK workforce – generating employment tax receipts of £18.4 billion, contributing 4% of the UK’s gross-value added.

Contributor: David Dooks

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