The UK financial sector has, for many decades, been the main growth engine of the UK economy. The effects of the financial crisis of 2008, triggered by irrational exuberance and light regulation of the sector, were felt much less in financial circles than in many other parts of the UK economy. While the average take-home pay for the average worker remains below pre-crisis levels, the financial sector has paid out 50% in bonuses in 2021, despite the pandemic.
The sector has enjoyed significant tailwinds from the global M&A boom over the last couple of years. Stimulus money still sloshing around, the economy has seen more than US$5 trillion dollars worth of acquisition deals. As a result, fees charged and services rendered by the UK’s financial service sector are at record highs.
However, potential storm clouds are gathering on the horizon for many tranches of the UK’s behemoth financial sector:
While London remains the leading global hub for financial services, the rest of the world is jostling for position to pick up the activities the UK has lost as it moves out of the EU’s orbit after Brexit. Most pressing for London is a sudden dearth of highly educated staff, a problem not experienced in hubs such as New York, Singapore and, as the EU looks for its own financial hub post-Brexit, Paris. Does the recent relaxation of IPO listing rules go far enough to retain London’s position as the premier financial hub?
With such fluid and evolving market conditions, Plimsoll has taken a look at the state of play in various parts of the UK’s financial sector. The following shows the latest growth rates, profit margins and level of risk in the UK’s leading financial industries:
|
|
Growth |
Profit |
% Danger |
|
| Banking |
-7.6% |
6.6% |
18% |
|
| Stockbroking |
7.9% |
14.7% |
9% |
|
| Commodity Brokers |
0% |
2.5% |
10% |
|
| IFA |
9.1% |
5.6% |
9% |
|
| Wealth Management |
8% |
5.7% |
7% |
|
| Corporate Advisors |
14.8% |
10.6% |
8% |
As the table above shows, the last couple of years has had a differing impact on various parts of the financial sector. The UK Banking industry has seen, by some distance, the largest decline in turnover. Is that as a result of a fall in corporate and personal lending due to the pandemic or is it an early sign that more of the UK’s banking industry is relocating to the EU after Brexit?
Elsewhere, advisory services have continued to enjoy favourable conditions. As the UK adjust to the new trading reality of a post-Brexit, post-COVID world, corporate advisers are increasingly in demand. As we move beyond the immediate impact of these twin disruptions, will the market be able to sustain that level of growth over the coming decade?
Finally, the difference in performance between brokers of commodities and equities is stark. While stockbrokers have ridden the wave of record equity prices as a result of pandemic stimulus inflating assets prices, commodities have been less lucrative. Will the disparity narrow as the economy normalizes over the next few years?
Financial services continue to be an outsized engine for the growth of the UK economy. Brexit may free the UK from some of the EU regulatory shackles but the downsides could be severe. With so much uncertainty, it pays to understand the long-term prospects of the leading protagonists in each of the key markets of the financial sector. Plimsoll has assessed every company in more than 50 different financial markets. Visit www.plimsoll.co.uk to search for the financial market that matters to you and see who is outperforming their competitors and who is falling behind.