According to TheCityUK, Britain has the fourth largest banking sector in the world, the third largest insurance sector, the second largest fund management industry and the second largest legal services sector.
Trade surplus generated by the UK’s financial services sector has soared in the past decade as well – all of this despite warnings that the sector would be damaged by the UK remaining outside the euro in the late 1990s.
Ruth Lea, chairman of Economics for Britain, said: The UKs insurance industrys overseas trade is dominated by non-EU markets of which the US is by far the largest. The US market accounted for nearly 40 per cent of net earnings, but other significant non-EU markets included Turkey, China, Singapore, South Korea, South Africa and Mexico. In contrast EU markets accounted for less than 20 per cent of total net earnings, with Germany being the largest.
Trade with the EU in financial services is proportionately more significant, accounting for over 40 per cent of net earnings. But, even so, the US remains by far the largest single market, explaining why the sharp decline in financial services exports to the US around the financial crisis had such an impact on the overall accounts. Taking insurance and financial services together the EUs share of net export earnings was about one third, little more than the USs share of 30 per cent.
Another reason why the EU is becoming a shrinking economy is because of the rise of the BRIC nations. As the ‘Fresh Start‘ project reported, while in 2005 the UK, Germany, France, Spain and Italy accounted for 27 per cent of global banking assets, in 2050 that will have decreased to 12.5 per cent .
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And the PwC estimated that BRIC countries will see their share leap from the 7.9 per cent seen in 2005 to 32.9 per cent in 2050.
Such major changes in the global economy will inevitably have implications for the future prospects for UK trade in financial services with the EU.
Indeed there are already signs that the EU share of financial services exports is falling,” Lea said. The ONS has published bilateral data back to 2004, though there could be problems of consistency between the data for the years 2004-2006 and the data for 2007 onwards. The EU share of financial services exports was around 42 per cent in 2004, but it picked up quite sharply in 2009-2010 reflecting the fall in exports to the US, clearly reducing the non-EU share.
But since 2010 the EUs share has fallen away as the US has recovered and by 2013 the EUs share had fallen below 42 per cent. Given the alleged allure of the Single Market in financial services, this can be only regarded as disappointing. Moreover, it can be expected that the EU share of financial services exports will fall. Unlike the financial crisis, which was a dramatic, hopefully ‘one-off’, event that should not be repeated in the foreseeable future, the main factor bearing down on exports to the EU, its sheer lack of growth, is expected to persist. This is unsurprising, given that one of the main drivers of export growth, if not the main driver, is growth in export markets. And growth is sadly lacking in the EU.
Taking exports of insurance and financial services together, the EU share was 34 per cent in 2004, though this figure should be treated with caution, rising to 35.5 per cent in 2007 (the ONSs latest estimate) and 38 per cent in 2010. It had fallen to 34 per cent by 2013. The EU share seems to be in secular decline, as with trade in general.