UK Financial and Business Services Review – Credit Crisis Will Lead To Weaker Growth

Financial & business services are more than just about investment & retail banking (legal, accountancy, insurance, pension funds etc are also in it), but the credit crisis has brought down some very well known banks around the world. Although this is a crisis that has global implications, it started in the developed economies’ mortgage markets, and the high level of borrowing based on them, and so involves financial firms in these economies more than in any other.

· Financial & business services are more than just about investment & retail banking (legal, accountancy, insurance, pension funds etc are also in it), but the credit crisis has brought down some very well known banks around the world. Although this is a crisis that has global implications, it started in the developed economies’ mortgage markets, and the high level of borrowing based on them, and so involves financial firms in these economies more than in any other.
· Financial & business services have driven economic growth in the US and in the UK in the past decade, as debt has accumulated rapidly in the personal and government sectors. This has been less the case in Europe and Japan, and in the developing countries generally. Nevertheless, world services output has grown strongly, helped by robust global M&A activity as well as massive cross border capital flows, boosting legal and related accountancy activities.
· In the UK, we look for weaker growth in the financial services sector in the next 2 years as the pace of debt growth is significantly reduced by households. Moreover, the UK has benefited from the rise in global capital markets in the last decade, so its slowdown will reduce economic growth. But positive demographics, high income and employment levels will support a recovery in financial services in 2010, after a weak 2009. How UK bank nationalisations will affect the future is uncertain.
 

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