Financial Services Industry in UK
Introduction
In the year 1990’s, the restructuring in the UK Financial Services Industry had emerged. In the early 1990’s it marks as the financial services firms that begins in the process of retrenchment for the response of the growing problems in indebtedness of financial and the downturn of financial market. These changes on the financial market services firms can be accurately be described with the process of the restructuring profit with the great wreaking in the industry. Nevertheless, the financial services labour markets are also made again. These are all shrinking in size, compulsory redundancy, and the firms are engaged in the unprecedented rounds while taking the new forms for the firms. This move can have the important long term implications to the industry for the regional and urban development. This can be a guide for the firms of financial services to be the reorganize the operations for the reduction of cost and the redrawing the financial markets for the maximization of the profits and reduction of risks (Leyshon, and Thrift, 1997, p.199).
There are now challenges that the financial services industry in UK is now facing which includes the competition, rapid technological progress and demanding customers. The financial services can have the impact in the society as well as to the environment that had been derived in the capital that had employed from the financing of the project infrastructure for the developing nations in order to provide the low-interest loans for the small business which as the effect to the change in the risk profile for the lenders and to the borrowers (Price Water House Coopers, 2008).
The General Financial Product Services in UK
The industry of financial service products in UK had offered variety such as the Life insurance, general insurance, banking and savings, and credit commitments. Accordingly, the financial products that have the highest market risks are the venture capital trust, emerging market, specialist trusts, split capital and the investment trusts. Under the life insurance, there are the products of any lie products with the non-mortgages–related, the term insurance, endowment mortgage, and the personal pension plan, as well as the investment plan. In relation to the general insurance, the products consist of the House Insurance, Home Contents, house structure, and the combined motor insurance. Aside from that, it also includes the personal cash benefit, the personal health insurance and the hospital cash benefit. For the banking and savings products, it includes ay banking with the building and bank society account, the bank, the ATM card, the national savings, premium bonds, and stocks and shares. For the credit commitments, it includes the credit card, mortgages, store cads, the charge card, traditional bank loans and converted building society (Elaine, J and Lee, S 2002).
Key Features of Selected Financial Services in UK
The banking and savings sectors in UK place an important role in the UK industry. Key features can be determined at this service. First, is the fact that they need to be competitive due to the large number of the banks while the concentration level is tending to be low. For the past two decades, there are 704 banks in UK whereas almost of these are foreign banks and held the 60 percent of the UK banking system’s total assets. The banks are also tending to be more of the general side and not the specialist lenders or borrowers in the banking activities. For the past years, there was a distinction for the borrowing and lending activities and the building societies. As compared to banks, the borrowing and lending of the building societies were only restricted to the raising of non chequing deposits and financing mortgages (Hare and Davis, P. 32).
The main features in the banking system of UK are the building societies, commercial banks, the discount houses, merchant banks, overseas banks, and the finance house. For the ordinary people, majority of the visible units for the current banking system are the retail banking or the banks that are privately owned who deals in the public. This retail banks has the function of accepting deposits, transfer the deposits n the other banks or the customer, make the loans to the customers, and they also use some of the funds in order to purchase the interest earning asset for the open market (Lipsey, et.al, 1992, p. 355).
The life insurance in UK had accounted for 33 percent in the total European life market. The invested UK insurance industry for its assets had been accounted for nearly 34 percent of the total invested assets of the European industries. The insurance industry is an important contributor for the economy of UK, the significant source of the overseas earnings and major employer. Because of the popularity of the insurance as the saving vehicle in UK and protective role can give the highest per capita insurance expenditure in the European Union and the third of the highest in the entire world. The life insurance products per capita expenditure except the personal pensions are all increased for ₤418 in the year 2002 and 2003. The industry is also accounting for 20 percent of the investment in the stock market with the benefits of ₤50 million for the general claims (Cummins and Venard, 2007, p.45).
The Competition in the Financial Services Industry
There were the myths in the financial services that arise from the complex products and services. Most of these products had the designs for the maximization of tax advantages that are available anytime which does not led to simplicity. The other factor that arises is the present building of products for making it simpler for the customer as well as for the maximization of revenues from the customers. Taking the example of the products of general motors insurance, those are usually offered with the legal expenses insurance and to the motor insurance with he cover of breakdown. Due to the bundle of the products can lead for the organization to specialize in the key competencies. This means that the legal expenses can have the chance to provide one or two insurance companies and the other companies of general insurance that can be outsource by the administration in the legal expense for covering the companies. The broking as well as the other intermediary organizations can specialize the simply advising on the services and products that are available from the different product providers. The other organizations can support the sales network for the regulatory administration and monitoring as well as the provision of financials. The organizations with the high-end brand names can allow their distribution channel to sue for the promotions of branded products while they are outsourcing the design of the products and the administration for the financial services specialists. The regulation for specialization can also be driven due to many financial products and services can be supplied through the appropriate authorized organization. For taking into the account of variety distributions for the financial products and services that adds another complication. Majority of the product providers can undertake the direct sales and the sales through the intermediaries (Webster, 2006, p.4).
Most of the company and the financial services providers are competing with the brand name and through the suppliers name as well as to their individual products and services. Part of their movement on their competitions is the product modification and the product development. The greater percentage for the competitions is being anticipated by some of the primary mortgage brands that are entering into the market. Therefore, the process of innovation is taking place which is the noticeable effect for the experience of the customer with more profoundly and directly as compared to the utility feature of innovations for the recent years. They also compete through promotions which can place the great emphasis on the corporate branding. The other innovative services are the collection for the customers, the suitability determination, and the use of the internet and the updating of the information. The customers also highly supported these events and most of them realize its importance (Ennew and Waite, 2006).
The Interest rate of Bank of England and its effect to the Financial Product Services
The Bank of England does not set the ratios for the liquidity for the various types of exposures. For the changes in the interest rate of Monetary Policy Committee, the financial services companies and commercial banks who are conducting the fiduciary business can have their own investment on the subject of polarization. This only implies that they should demonstrate their own products for the best and available for giving their independence and sell product while the commercial products can have the in-house products (Saunders and Walter, 1994, p.124).
For the said scenario, there will also be the dilemma that is similar in the faced of the Bank of England for its dealings to the banks. The bank also made the detachment for the viewing of the dangers for the bailing out of the institutions. There is also an argument regarding the jobs as to provide to the safety net and to the behavior of imprudent. Nevertheless, if the crunch had been dragged on, the bank has to realized that the crisis can affect the economy and to the innocent bystanders. There will be the great realization that the monetary policy cannot be an academic posture but to teach the errant banks with the lesson to be needed in the practical exercise of the head off recession. In the issue of the interest rate, there will be a bleak in the outlook. This means that the mortgage lenders are the prediction of having no change in the house price where it is need to close if the interest can come. There will also be an economic sick enough for anything as to the gentle fall. The households can also be affected for the weak income of the growth as well as the soaring of the foods, the petrol price and the fuel. There will also be tough competitions for the American firm with the weak dollar. For this time, there will only be one message that emerge in the mortgage and that is straightforward, is the fact that there should not be tempted for locking itself into the fixed rate of the mortgage yet, while the variable options must considered (Daily Reckoning, 2008).
Most of the homeowners therefore face the great jump in their payment of mortgages while their special interest rate will deal on the end and are replaced by the mortgages of standard variable rate (SVR). Most of the banks will have to reduce the range of the products from the market or even removed the special offerings and can replace it with the more expensive products. In general, the problems with regards to the financial sector and to the falling of the housing prices can lead to the real problems of the economy of UK and there is no doubt that it can the catalyst for the Bank of England’s interest rate cut. The correction for the housing market can also be the long overdue as the change in the consumer behavior of spending. For the more significant, the importance of the financial sector for the British Economy can be the disruption for the financial market. The banks can be established with the greater stability before position for the financial can once again be in sound (Banking Business Review, 2008).
For the high interest and the succeeded for the slowing inflation, there will be the introduction for the debt crisis in the sector of UK financial services. This implies that if the house prices plummeted, then, the economy will slowed and levels on the increase of the unemployment which includes the levels of the unemployment inside the sector of financial services. The problems also arises when the mis-selling were all directed in the industry as in the private pension (Boddy, 2003, p.1997).
Macroeconomics and Financial Services in UK
Since the technology can have the work with the flavor of clustering for the easier firms in order for the relocation of activity from the market and to the City cluster due to the investigation that there is an impact of the UK euro as its adopt to the sector of financial services. Though, if the firms in the operation of the financial sector must be considered for the United Kingdom which was not a competitive location, therefore the relocation can be easily done or the relocation to the somewhere more of the competitive area. There can also be possibility of tipping for the point whereas there is a departure for one or two large banks that could be vulnerable in the other firms that they follow. For the past years, the UK financial services industry had been gaining its business yet there are little signs of occurring risks. For the continues purchase of the said scenario, most of the policy makers need to emphasize further on the policy of sounds regulatory, the stability of its macroeconomics, the investment in the human capital, and to the openness as there is a further efforts that will be needing in the improvement of the business environment. For the more examples, more of the efforts need to make in order for the minimization of the burden in the regulation of business and to the further improvement of the transport infrastructure in the country. It can also make the industry to be more efficient and stable (OECD, 2007, p.44).
For the smooth function of financial services industry in UK, the stability in the microeconomics can make the deeper and more efficient financial sector. There can also encourage for the savings mobilization that leads to the capital and lending accumulation. There can also ways fro the poor to have the bankable client and the expansion of products. There will also be the low rates in the interests rates that can be remain. In relation to this, the stability can also produce the larger capital for the stock per head and the higher investment in UK and it can also resulted on the exchange rate of the major trading partners (Barrell, R 2002).
National – Macro Economic Policy and Control Measures
The policies regarding the macroeconomics are all the aggregation of the economy which includes the output, the prices, investment, employment, and savings. This is also includes the government balances as well as the balances on the external account. The macroeconomic policy and its goals can and also vary. This includes the creation of conditions on sustained growth, the inflation control, price stabilization, and the reduction of unemployment. For this policy, there are the three major instruments that can be managed for the aggregation of macroeconomics. These include the fiscal policy, the exchange rate policy and the monetary policy. In the fiscal policy, it concern in the taxation and the mobilization of the resource methods as well as the expenditure patterns which includes the aggregate fiscal. For the monetary policy have the addresses mainly on the base of the interest rate and to the level of economy’s credit. With regards to the exchange rate policy, for the open economies, it is largely related on the monetary policy (Ghosh, 2007).
The changes in the macro economic policy can also involve in the trade offs at the midst of the conventional accepted goals. Therefore, this is for the quest in the stability of macroeconomic that focus on the inflation as well as the counter-cyclical measure that can be worsen in the imbalance of the sector and control that can imply in the sacrifice of the employment. This searching and changes for the stability of macroeconomics can also lead to the insufficient emphasis or to the strategies of sustainable and more inclusive growth and development as well as the improvement of human development and to the meeting of broader social objectives. Particularly, the price goals and its stability as well as the employment generation can also lead to conflict. Notwithstanding, pursuing the price stability or for the correction of the external imbalances can also lead too often become dominant as it lead to neglect in the persistent and pervasive unemployment as well as underemployment. As an example are the public resource mobilization and the strengthening of the tax policy as well as the trade taxes. This also includes the VAT, the increase in the fiscal stimulus, and the import liberalization. For the supply of money includes the expansion of money supply and low interest rate as well as the change in the financial rate can accommodate the growth and the financial deepening. The problems that can arise in exchange rate policy are the encouragement of tradable stability of prices (Ibid).
Factors that Shapes Financial Market Operations
There several factors that affects the shapes in the financial market operations which are resulted by the demand and supply force. The supply factors are determined by the stream of the asset that are slated for privatization. The demand factors as in accordance to the definition of demand can also be determine by the capacity of the society to gain the assets which does not mean purchasing the power of assets and can be acquired for free. The factors of demand and supply are considered to be constantly shifting as well as the financial services. The elements in the financial services can have the factors which include the economic factors, the market psychology, and the political factors. On the conceptual side, the relationship between the activity and the commodity prices can also reflect the factors of demand and supply. There are several arguments that can shape up the international environment to be more of the demand factors that can come up into play as compared to the supply factors. The commodity prices are all dependent on the on the global demand and supply which is not the market perceives for adequacy in the risk premium for asset. The demand for the loans in the market host can be expected for the more positive function in the level of economic activity which includes the volume of GDP. The financial development can also be driven by the demand as it needs to bring the large amounts of the savings. The better financial market allocation can also bring the importance of the capital and growth accumulation as well as savings for the increase in the investment and to the savings as it is correlated to the returns. There are also complementary between the development of the economy and the equilibrium for the insufficient development. These can come from the increase of the return in the financial technology and to the external financial development. For these externalities, the financial development can also be thought for the economic shifting and to the equilibrium to another (Arestis, P and Sawyer, M, 2006, p.390).
Because of the increase upgrades of the technology, most of the analysts and for the one that enter the market out of the fear can have determine beyond their reach while the demand have to continue the outstrip the supply. There are also new housing projects that are often snapped by the absorption of the housing market. Additionally, the supply of the sort-run property is inelastic which can change the housing stock. The supplies factors can also be related to the economic growth as well as to the creditors of the country sue to the expansion of the banks and to the total portfolio that are related to the entire growth of economies. The growth of the debtor country can also be risky to the country and to the portfolio of the bank that would be related to the economic performance of the country (Kendall, J et. al. 1999, p.81).
The online businesses can have the effect on the financial market even before the investors started to be the cyber surfers. These investors went to the online for the thousand websites and up to the advice and information that can be readily available from the broker and to the professional investors. With the aide of the net, most of the investors can have the access on the market quotes, predictions and to the analysis for the participation in the forum discussion. They also have the opportunity for buying and selling the securities, the stocks, mutual funds, and securities. For the latest trend regarding the online trading can have to offer more of the financial services and trading advices as well as information (Eberts, M and Kelsey, R, 2003, p. 73).
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