Saturday, October 25, 2008

How Much Will Financial Services Contract?

2001: Financial services accounted for 5.5% of Britain's GDP
2007: Financial services accounted for 10.1% of Britain's GDP*

In London the proportion doubles to 20% of the capital's GDP If you include professional services linked to the financial services sector the proportion rises to 14%. In London the proportion rises to 33% (double that of New York).

I am not qualified to hazard a guess at how much the financial services sector will contract over the next two years, but would I be wrong in thinking that the 10.1% figure is likely to drop sharply?

Average Household debt in Britain is 173% of disposable income (compared to 106% in 1995)
Average Household debt in the USA is 139% of disposable income.*

Anyone know what the equivalent figure is in France and Germany, or the EU as a whole? The table below indicates it is much lower.

Household debt as a per centage of GDP*

France 56.2%
Germany 70.1%
OECD Average 79.5%
USA 98%
Britain 104.2%

* Source: TIME Magazine 20 October 2008


Anonymous said...

Great post Iain..

I think yours is the first blog I have read asking this question.

Of course no one knows the answer but if financial services go down the swanny so do all those that support them. Cleaners, caterers, IT specialists, cabbies, builders, nannies, back office/front office and so on. UK PLC could despite what Gordon says suffer more than most, we don't actually make anything much these days, we just spend and lend.

Anonymous said...

As someone who works in a IT consultancy in the city - the only question is how much.

Ironically we may well end up getting more work - banks will be rebuilding their systems from basement to boardroom, with much more detailed reconciliation and risk measuring.

What you are going to see in the a slaughter among middle management. The grunts at the coal face are generally to cheap to bother firing. The traders who actually make money will stay. The top level will try and protect themselves.

What you are looking at is a massive flattening of the structure - whole layers of management will be binned.

That is one side of it - but this will happen even if business (volume of cash) doesn't shrink. Which it will.

It is not impossible that the salary money going into the economy could halve. Tax receipts may well vanish as banks post low/no profits. Those that can't do dividends because of the government help have a massive incentive to use all the cash to pay the government back as fast as possible. So, some banks will post no profit for *years*.

Anonymous said...

Oh dear - with the City of London's financial cash cow on a starvation diet it looks like we'll have to rely once more on Scotland's oil wealth to prop up UK plc and England's* spendthrift Labour government lording it over us all.

* elected with a big parliamentary majority in England at the 2005 election, just for all those that like to blame Scotland for this shower of a government.

Anonymous said...

Mortgages comprise much of the Household Debt.

The proportion of UK families owning their own homes is much higher in the UK than in France or Germany.

Therefore, it is to be expected that Household Debt levels will be higher in the UK because more families have a mortgage.

What about comparative figures for Family Assets? That would take into account the equity in the family property.

Anonymous said...

[Already posted on Coffee House, but relevant to this I think]

People have called "time" on the City at least three times since I've been following these things - in 1987, 1998 and 2002-3. But each time, it has bounced back, exploiting new product areas and niches. It is important to bear in mind that the City isn't homogeneous - it's too sprawling for that - and what's bad for one sector is also good for another. While Brown and his idiots have done their Socialist best to screw it up by messing up regulation and drowning the country in debt, don't forget that other financial centres are going to suffer badly, and that many of the City's comparative advantages, such as its favourable position between the time zones, our political stability and its human skills pool are still there. It is also a huge exporter, and it has just lucked into a big favourable shock with the 25% devaluation of the pound. So the City will soon come roaring back, despite, not because of, our current government.