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Western EuropeJuly 31 2005

UK banks should go Continental

Storm clouds are gathering above the UK banking sector. Azhar Rizvi recommends taking shelter in continental Europe.
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The UK banking industry has had a golden era in the past few years, with profits and returns showing strong growth. The UK banks are strong globally: in terms of market capitalisation, three are among the 10 largest banks in the world and five are among the global top 100 companies. The significance of the UK banking sector as a whole is undeniable and is largely reliant on success in the home market.

However, strains are emerging in the UK economy. Reduced confidence in the housing market, concerns about the servicing costs of consumers’ record levels of debt (with secured debt at around 110% and unsecured debt at 23% of disposable income), potential tax increases and falling employment are all taking their toll. Consequently, consumer spending seems likely to fall from its seven-year high. The future economic backdrop may be less benign for banks, therefore, with limited scope for revenue growth.

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