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cashinmattress

Spreadtastic Returns For Uk Plc.

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Spreadtastic returns for UK plc.

Healthy headline figures sometimes obscure more disturbing underlying details.

The latest report by International Financial Services London, the independent organisation promoting UK financial services, says net exports from the UK financial sector rose by 28 per cent to a record £51bn in 2008. Great - but how?

Breaking down the figures, we see that:

Banks were the much largest [sic] single contributor in 2008, with net exports totalling £31.1bn, 62% of the financial sector total.

And:

Spread earnings and FISIM exports combined made up 85% of banks’ net exports in 2008.

So, according to the report, 53 per cent (85 per cent of 62 per cent) of the UK’s financial sector exports came from two activities - spread earnings and so-called “financial intermediation services indirectly measured†(FISIM). FISIM, if you’re interested, is the implicit charge for banks’ services related to borrowing and lending. It is paid for by the interest differential or margin between the borrowing and lending rates and the reference bank rate.

Until 2008, these figures had not been included in the report — which means they only began to make an appearance, quite fortuitously, when spreads were blowing out over the course and leading up to the September financial crisis.

As IFSL state:

FISIM exports rose by 81% from £8.5bn to £15.4bn, as a result of increasing margin on loan and deposit rates.UK banks' net exports - IFSL

12336.jpg

As can be seen that’s quite an uptake over 2008 for the FISIM figures, in particular.

Elsewhere, the report reiterates the overwhelming reliance of the UK economy on the financial and business services sectors. The two sectors partially offset large deficits of £93bn in manufacturing and £18bn in travel (see chart below). Nevertheless, the UK still had an overall deficit for trade in goods and services of £38bn in 2008.

12326.jpg

UK sector trade balances - IFSL

We also learn that the UK’s financial services’ dollar-trade surplus of $67bn in 2007 (the latest year for which international comparisons are available) was around three times that recorded by Switzerland ($23bn) and Luxembourg ($22bn). The US had a surplus of $7bn.

Sounds great - but note the disclaimer (our emphasis):

Coverage of trade in services statistics relating to banks may vary between countries. UK data, for example, include spread earnings and FISIM but these may only be included in part or not at all in other countries’ figures.

Of course, trade surpluses are not necessarily a sign of strength but, even so, a closer look at these figures indicates that all is not so well at UK plc.

The only game in town is banking. Bankers banking in banks. Nothing else.

Too bad for us though, as in this game of monopoly, only the plutocrats have hotels.

Yes, UK PLC is not well at all.

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