Financial Services to Add 218,000 Jobs to British Economy

The financial services sector could add 218,000 jobs by 2020 in a boost for the UK economy, according to a PricewaterhouseCoopers report.

In the report titled, "Where next? Assessing the current and future contribution of the UK Financial Services sector", economists based their analysis on two scenarios to represent potential futures for the financial services sector and the wider economy.

The first scenario combines a robust regulatory regime that facilitates financial services sector growth with economic conditions that are also beneficial to the sector. This situation would increase the gross domestic product (GDP) 2-3% higher by 2020.

In addition, it would add as many as 218,000 more jobs to the economy with 47,000 additional jobs in the financial services sector by 2020.

In the second scenario, in which the sector is constrained by weaker economic conditions as well as a tough regulatory environment, UK GDP could only rise by 0.2% with an additional 12,000 jobs across all industries, according to the report.

"Our analysis suggests that the links between the financial services sector and other sectors across the UK economy are strong," Kevin Burrowes, UK financial services leader at PwC, said in a statement.

"This shows the important contribution the sector makes to the UK economy across all regions, but also highlights the profound effect that financial services regulation or changes in financial services performance can have on non-financial services business."

Financial Services Critical to Growth

UK businesses spent more than £113bn on financial services in 2010, according to official data. Meanwhile, the sector bought more than £90bn worth of goods and services from other parts of the economy in 2010, with strong demand for telecoms, IT, transport and catering.

In addition, the sector has generated more than £20bn of activity within itself in 2010 through sub-sectors such as investment banking and brokering.

"The financial services sector has a critical role in the UK economy. In addition to providing credit, it creates demand in other sectors and helps improve the flow capital around the economy. A well-functioning financial services sector improves both capital efficiency and overall UK productivity," said Nick Forrest, director and financial services economist at PwC.

Need For Better Regulation

While the sector has contributed significantly to the GDP over the past decade with higher investment and job creation, the financial crisis has highlighted the drawbacks in its regulation.

"The challenge for policymakers is the provision of effective UK and EU regulation that limits the likelihood and impact of any future crises, while allowing both the financial services sector and the wider economy to prosper," Burrowes added.

"The UK needs some re-balancing of financial services regulation to unlock the industry's potential in a sustainable and stable way to achieve the contribution that financial services can clearly give to the economy."

PwC noted that many regulations in the sector are constraining firms' ability to offer better advice and products to customers as well as preventing competition in the sector.

"The greater confidence that businesses have that their future profitability will increase, the more likely it is that they will invest, leading to an increase in the different components of GDP such as consumption and exports," Forrest said.