UK Financial Services Lost Momentum, Says BCG
A new report by Boston Consulting Group (BCG) reveals that the UK's financial services industry has lost momentum over the past 15 years and requires urgent structural reforms to regain its global edge. While the sector remains among the world's largest, its contribution to domestic economic growth has weakened significantly.
Fifteen Years of Underperformance
“While the UK's financial services sector continues to appear a world leader on the surface, analysis beyond superficial metrics reveals fifteen years of underperformance,” the BCG report states. It adds that “the virtuous circle – where a thriving financial sector feeds lending, investment and productivity growth across the economy – has broken down.”
According to BCG, had the sector maintained its pre-financial crisis growth trajectory, it would be approximately 40% larger today. This translates into an additional £66 billion in output and nearly £100 billion in wider economic value.
Enduring Strengths Despite Slowdown
Despite the slowdown, the report highlights several enduring strengths. The UK remains the world's second-largest exporter of financial services, holding a 13-15% share of global exports over the past decade. It also hosts one of the world's most vibrant fintech ecosystems, having created 40 fintech unicorns over the past two decades and attracting a significant share of global AI talent.
Domestic Economic Impact Stagnant
However, BCG notes that these strengths have failed to translate into stronger domestic economic performance. Business lending has stagnated, productivity growth has turned negative, shareholder returns have lagged international peers, and employment in financial services has declined since 2011. The report also points to a sharp fall in pension fund allocations to UK equities, signalling weaker domestic capital formation.
Causes of Underperformance
The consultancy attributes the sector's underperformance to a combination of overly risk-averse regulation, declining business credit availability, chronic underinvestment in technology, and weak growth in fee-based income. It argues that post-financial crisis reforms, while improving resilience, have inadvertently constrained growth and innovation.
Four Strategic Priorities for Revival
To reverse the trend, BCG proposes four strategic priorities. These include embedding artificial intelligence across financial services, improving credit flows to businesses through new public-private lending mechanisms, positioning the UK as a global hub for digital asset infrastructure, and creating a new policy compact between government, regulators and the industry that gives growth equal importance alongside financial stability.
AI as a Growth Driver
The report stresses that artificial intelligence should be viewed not merely as a cost-saving tool but as a growth driver. “The most urgent AI opportunity for UK firms is not cost reduction, it is revenue growth,” it said, urging firms to use AI to deepen customer engagement, improve lending decisions and develop new revenue streams.
