September 26, 2006 | posted by Michael Baxter in Uncategorized |

Manufacturing stutters along in its rut. Retail and housing have just gone through a nasty slowdown, and yet the UK continues to grow at more than a respectable pace. How can this be? We are sure you can probably have a good guess, but here’s the answer anyway. Financial Services have been the UK’s saving grace.

According to a report published by International Financial Services, London, Financial service’s contribution to the UK’s GDP has risen from 5.5 percent in 2001 to 8.5 percent last year. The sector stands near the top of the value chain too, because it accounts for just 4.1 percent of the UK’s employment.

Professional services, (which the report defines separately from Financial Services) has also seen its share of GDP grow, from 2.6 percent to 3.6 percent over the last ten years.

Two of the big problems that plague the UK economy at the moment are the sizes of the budget and trade deficit. Financial Services is certainly helping to reduce these problems, with the sector generating a “trade surplus over the past decade, up from £6.9bn in 1995 to £19.1bn in 2005, although the latest year represented a rare setback with the trade surplus dipping from £20.4bn in 2004,” says IFSL.

But while Financial Services contributes more than its fair share to the UK’s tax revenue, the share has fallen, while the sector has grown. In 2001, the sector accounted for 34.9 percent of the UK corporation tax, and 13.6 percent of income tax. But, by 2004 this share had fallen to 26.2 and 11.6 percent respectively.

Not surprisingly, London holds the lion’s share of the market, accounting for 42 percent. In fact, says IFSL, As much as 16.8 percent of GDP in London was generated by Financial Services.

The South East contributes 11.2 percent and Scotland 7.7 percent to the sector.

But, that’s all very well, but Financial Services is a broad brush. What about the sharp end, what the Centre for Economic and Business Research calls ‘City types’. Apparently, jobs falling into this category have risen from 294,000 in 1998 to 332,000 in 2006.

For further information

Economic contribution to UK of financial services IFSL

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