The changing relationship between the UK economy and its banking sector

The UK economy’s relationship with its banking sector has often been mutually beneficial, but has occasionally been tempestuous. In the decade to 2007, the banking sector expanded rapidly, building on the many natural advantages of the City of London, including its time zone (which allowed traders to wake up with Asia and go to bed with America), the availability of skilled staff and its regulatory framework which, although recent events have demonstrated the need for substantial reform, was for a long time seen as a world leader. Survey measures of financial centre attractiveness consistently put London around joint top with New York. ¹ At the same time as UK banks were conquering world markets—in 2007, the then big four UK banks made 44% of their profits overseas—the banks were also financing a major leveraging of consumer balance sheets. Between December 2000 and December 2007, median leverage of British banks rose from 21 to 35. Between 1960 and 1999 it had averaged 19, peaking at 25 in 1984. ²