22 March 2005

The UK financial services sector: Rising to the challenges and opportunities of globalisation

The global economy is in the midst of a radical transformation, with far-reaching and fundamental changes for the pattern of economic activity. These changes pose challenges and opportunities for the UK and all advanced economies. The financial services sector has a central to play and will be key to increasing the flexibility and dynamism of UK business and the wider economy.

The paper identifies a critical role played by the financial services sector in all advanced economies, in terms of three core functions: matching savers, borrowers and investment through the investment chain; risk pooling and management; and facilitating payments. The UK financial services sector fulfils its functions nationally, regionally and globally, reflecting its central role within the globally-integrated marketplace. As a result, it makes a significant direct contribution to the wider UK economy.

The paper identifies four key trends in the global economy that are changing demand for financial services, including: growth in emerging economies; tougher global competition; technology and the increasing rewards from innovation; and demographic change. In addition, technology and the liberalisation of financial markets are driving structural changes in global financial markets themselves.

Looking ahead, the paper argues that in responding to changing trends in the global economy, the UK financial services sector has a key role to play. The paper identifies four key challenges for the future:

promoting further financial integration;

ensuring that the UK financial services sector meets the changing needs of the UK economy;

ensuring that the UK financial services sector meets the changing needs of the UK society; and

ensuring that the UK financial services sector remains globally competitive.

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