Economy and Banking Sector of the United Kingdom

The United Kingdom is a modern and prosperous European nation, third largest economy in Europe.

The United Kingdom is a leading trading power and important financial center attracting investors from all over the world by its stable environment and financial and corporate legislation. Among more than 350 credit institutions operating in the United Kingdom, there are about 140 branches of foreign credit institutions from 40 different countries. Most of the British Crown dependencies and Overseas territories are also financial centers specializing in offshore finance and banking.

Location Northern Europe
Population (2016)65 341 183 ↑ (+0.01%)
EU Status member since 1973
Economy
National Currency GBP (Pound sterling)
    Exchange Rate (2017-01-19) 1 EUR = 0.86555 GBP
GDP 
    Nominal GDP (2015)2 568.9 bln EUR ↑ (+0.13%)
    Nominal GDP per Capita (2015)39 500 EUR ↑ (+0.13%)
    Real GDP Growth (2015)2.2 % ↓ (2014: 2.6 %)
Inflation Rate 
    CPI, MoM (Aug 2016)0.3 % ↑ (Jul 2016: -0.1 %)
    CPI, YoY (Aug 2016)0.6 % no change(unchanged)
    CPI, Year Average (2015)0.0 % ↓ (2014: 1.5 %)
Unemployment Rate (2015)5.3 % ↓ (2014: 6.1 %)
Government Bond Yield (Sep 2016)0.67 % ↑ (Aug 2016: 0.59 %)
Credit Ratings (as of Sep 2016)
    FitchAA very high credit quality, outlook negative
    Moody'sAa1 high grade, outlook negative
    S&PAA high grade
Taxation
Withholding Tax 0.0 - 20.0%
Double Taxation Agreements 127 signed agreements
Information Exchange 
    Exchange on Request 25 signed agreements
    Automatic Exchange starts in September 2017
FATCA IGA in effect since 12 September 2012, Model 1
Banking Sector
Financial Market Development 4.9 (max 7.0) rank: 16th out of 138 countries
    Banks' Soundness 5.1 (max 7.0) rank: 62nd out of 138 countries
Banking Industry Country Risk 3(1 - lowest risk, 10 - highest risk)
    Economy Risk 4
    Industry Risk 3
Deposit Guarantee Scheme 
    Maximum Protected Amount 75 000 GBP
Country Ceiling for Deposits 
    Local Currency (Pound sterling)Aaa prime
    Foreign CurrencyAaa prime
Deposit Rates (Aug 2016, GBP)0.97 % ↑ (Jul 2016: 0.95 %)
Banking Sector Structure 
    Number of Banks365
    Recent Changes (2015) new banks: 5, closed banks: 7
    Consolidated Assets (2015) 11 488.05 bln EUR ↓ (-5.66%)
Major Banks
 The Royal Bank of Scotland plc (RBS)  Bank of Scotland
 National Westminster Bank (NatWest)  Lloyds TSB Bank plc
 HSBC Bank plc  Standard Chartered Bank
 Barclays Bank plc
 List of Banks in United Kingdom

the United Kingdom's Economy

National Currency

During the last 11 years EURGBP exchange rate was within the range 0.66325 - 0.95250, reaching its maximum in Dec 2008 and falling to its minimum in Jan 2007.

Euro to Pound sterling (EURGBP).
Chart 1. Euro to Pound sterling (EURGBP). Source: ECB.
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GDP

According to Eurostat, nominal GDP of United Kingdom in 2015 was 2 568.9 bln EUR.

United Kingdom outperforms the European Union in terms of real GDP growth with the average annual differential coming to 0.5% over the past 10 years (2005 - 2015). In 2015 real GDP growth was 2.2% which was above the Euro Area average (1.6%) and above the European Union average (1.9%). Real GDP growth in 2016 - 2021 are IMF's estimates.

Real GDP Growth in United Kingdom.
Chart 2. Real GDP Growth in United Kingdom. Source: Eurostat, International Monetary Fund.

In 2015, nominal GDP per capita in United Kingdom was 39 500 EUR.

United Kingdom has an above-average level of wealth in terms of per-capita GDP at purchasing power parity (PPP); this economic welfare indicator has, on average, exceeded that of the European Union by 7.1% over the past 10 years (2005 - 2015). GDP per capita at PPP in 2016 - 2021 are IMF's estimates.

GDP Per Capita at Purchasing Power Parity in  United Kingdom; European Union = 100.
Chart 3. GDP Per Capita at Purchasing Power Parity in United Kingdom; European Union = 100.
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Inflation Rate

According to Eurostat, inflation rate in United Kingdom in 2015 expressed as annual percentages of average consumer prices was 0.0% which was equal to the Euro Area average (0.0%) and equal to the European Union average (0.0%). Inflation rates in 2016 - 2021 are IMF's estimates.

Inflation Rate in United Kingdom.
Chart 4. Inflation Rate in United Kingdom. Source: Eurostat, International Monetary Fund.
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Taxation in United Kingdom

Withholding Tax

Withholding taxes are imposed at source of income and are often applied to dividends, interest, royalties, rent and similar payments. The rates of withholding tax are often reduced by double taxation agreements.

Withholding tax rates applied on payments of interest and dividends in United Kingdom are shown in Table 1.

Dividends Interest
Natural person, resident 0.020.0
Natural person, non-resident 0.00.0
Table 1. Withholding tax rates in United Kingdom.
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Double Taxation Agreements

Double Taxation Agreement (DTA) is an agreement between two or more countries for the avoidance of double taxation.

United Kingdom signed DTAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):

 Albania (Dec 2013)
 Argentina
 Armenia
 Australia
 Austria
 Azerbaijan
 Bahrain
 Bangladesh
 Barbados
 Belarus
 Belgium
 Belize
 Bolivia
 Bosnia and Herzegovina
 Botswana
 Brunei Darussalam
 Bulgaria
 Canada
 Cayman Islands
 Chile
 China
 Cote D'Ivoire
 Croatia
 Cyprus
 Czech Republic
 Denmark
 Egypt
 Estonia
 Ethiopia (Feb 2013)
 Falkland Islands (Malvinas)
 Faroe Islands
 Fiji
 Finland
 France
 Gambia
 Georgia
 Germany
 Ghana
 Greece
 Grenada
 Guernsey
 Guyana
 Hong Kong
 Hungary
 Iceland
 India
 Indonesia
 Ireland
 Isle of Man
 Israel
 Italy
 Jamaica
 Japan
 Jersey
 Jordan
 Kazakhstan
 Kenya
 Kiribati
 Korea, Republic of
 Kuwait
 Latvia
 Lesotho
 Libya
 Liechtenstein
 Lithuania
 Luxembourg
 Macedonia
 Malawi
 Malaysia
 Malta
 Mauritius
 Mexico
 Moldova, Republic of
 Mongolia
 Montenegro
 Montserrat
 Morocco
 Myanmar
 Namibia
 Netherlands
 New Zealand
 Nigeria
 Norway (Dec 2013)
 Oman
 Pakistan
 Panama (Dec 2013)
 Papua New Guinea
 Philippines
 Poland
 Portugal
 Qatar
 Romania
 Russian Federation
 Saudi Arabia
 Serbia
 Sierra Leone
 Singapore
 Slovakia
 Slovenia
 Solomon Islands
 South Africa
 Spain (Jun 2014)
 Sri Lanka
 Sudan
 Swaziland
 Sweden
 Switzerland
 Tajikistan
 Thailand
 Trinidad and Tobago
 Tunisia
 Turkey
 Turkmenistan
 Tuvalu
 Uganda
 Ukraine
 United States
 Uzbekistan
 Venezuela
 Vietnam
 Zambia
 Zimbabwe

There are also several agreements between United Kingdom and other jurisdictions which were signed but haven't yet come into force (for agreements signed after after 01 January 2013 of signing the agreement is given in brackets):

 Belarus
 China
 Iceland (Dec 2013)
 Zambia (Feb 2014)
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Information Exchange

There are 3 ways for jusrisdictions to exchange information on tax matters:

  • spontaneously;
  • on request;
  • automatically.

Spontaneous exchange of information is provision of information that is forseeably relevant to another party without a request being previously sent.

Tax Information Exchange Agreements (TIEAs) enable exchange of information on request relating to a specific tax investigation, either criminal or civil.

United Kingdom signed TIEAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):

 Anguilla
 Antigua and Barbuda
 Aruba
 Bahamas
 Belize
 Bermuda
 British Virgin Islands
 Dominica
 Gibraltar
 Grenada
 Guernsey
 Isle of Man
 Jersey
 Liberia
 Liechtenstein
 Saint Kitts and Nevis
 Saint Lucia
 Saint Vincent and The Grenadines
 San Marino
 Turks and Caicos Islands

There are also several agreements between United Kingdom and other jurisdictions which was signed but haven't yet come into force (for agreements signed after 01 January 2013 of signing the agreement is given in brackets):

 Brazil
 Curacao
 Marshall Islands
 Sint Maarten (Dutch part)
 Uruguay (Oct 2013)

Automatic information exchange allows jurisdictions to exchange information automatically, without having a specific tax investigation.

United Kingdom signed the automatic information exchange agreement on 29 October 2014 and committed to start the automatic information exchange in September 2017.

Further Information:
Automatic Exchange of Information on Financial Accounts
Countries Which Will Not Automatically Exchange Account Information

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FATCA

Foreign Account Tax Compliance Act (FATCA) which became law in the United States in March 2010, focuses on reporting made by foreign financial institutions about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. The FATCA-reporting is facilitated by Intergovernmental Agreements (IGAs).

United Kingdom has FATCA agreement with the U.S. in effect since 12 September 2012 (Intergovernmental Agreement Model 1). Financial institutions operating in United Kingdom are required to identify U.S. taxpayers by January 1, 2017 and to report the information for 2017 and the subsequent years. The agreement is reciprocal: the United Kingdom's financial accounts hold in U.S. financial institutions will be reported to the United Kingdom's authorities.

Further Information:
FATCA and European countries

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the United Kingdom's Banking Sector

Financial Market Development

According to World Economic Forum's Global Competitiveness Report 2016-2017, financial market development in United Kingdom is scored 4.9 out of maximum 7.0 and ranked 16th out of 138 analysed economies. Soundness of banks is scored 5.1 bringing United Kingdom into the 62nd place, trustworthiness and confidence of financial market is scored 5.0 (29th place).

Financial Market Development in United Kingdom.
Chart 5. Financial Market Development in United Kingdom. Source: WEF.
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Banking Industry Country Risk

Banking Industry Country Risk Assessment (BICRA) is a methodology designed by Standard&Poor's "to evaluate and compare global banking systems". A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group 1) to the highest-risk (group 10). The BICRA methodology has two main analytical components: "economic risk" and "industry risk". Each of the components is then further divided into 3 "factors" that result in an economic and industry risk score for each country.

United Kingdom is included into group '3' with economic risk scored '4' and industry risk scored '3'.

BICRA Group 3
Economic risk 4
    Economic resilience very low
     Economic imbalances high
    Credit risk in economy intermediate
Industry risk 3
    Institutional framework intermediate
    Competitive dynamics intermediate
    Systemwide funding low
Government support assessment supportive

Table 2. BICRA for United Kingdom. Source: S&P's.

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Deposit Guarantee Scheme

Deposit Guarantee Schemes compensate certain deposits held by depositors of a bank that becomes unable to meet its obligations.

From a depositor's point of view it is important to know:

  • if the depositor is eligible within the terms of the deposit guarantee scheme;
  • if the depositor's bank is a participant in the deposit guarantee scheme;
  • if the depositor's type of deposit is covered by the deposit guarantee scheme.

All these details about deposit guarantee scheme in United Kingdom are summarised in Table 3.

Scheme Participantsall credit institutions operating in United Kingdom (including branches of foreign banks), branches of the United Kingdom's banks abroad
Eligible Depositorsprivate individuals, small companies
Covered Currenciesall
Maximum Protected Amount75 000 GBP
Paid In CurrencyGBP

Table 3. Deposit guarantee scheme in United Kingdom.

Further Information:
Deposit Guarantee Schemes in Europe

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Country Ceiling for Deposits

Moody's country ceilings for deposits specify the highest rating that can be assigned to local- or foreign- currency denominated deposit obligations of a bank or other deposit taking institution domiciled within that country.

Local currency (Pound sterling) deposit ceiling for United Kingdom is set to Aaa (prime), foreign currency deposit ceiling is Aaa (prime).

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Deposit Rates

In Aug 2016, an agreed annualised deposit rate in local currency (Pound sterling) of new contracts with agreed maturity up to 1 year between credit institutions and households was 0.97% .

Deposit Rates in United Kingdom.
Chart 6. Deposit Rates in United Kingdom. Source: ECB.

Further Information:
Compare Bank Deposits in the United Kingdom

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Banking Sector Structure

Currently there are 365 credit institutions operating in United Kingdom.

Recent structural changes (2013 - 2015) of the banking sector of United Kingdom are summarised in Table 4.

201320142015
Number of Opened Banks985
Number of Closed Banks2297

Table 4. Recent structural changes in the banking sector of United Kingdom.

All the credit institutions operating in United Kingdom can be classified into several categories. Table 5 summarises the number of banks in each category.

CategoryNumber of Banks
Banks180
Branches of foreign banks138
Building societies44
Central banks1
Savings banks2

Table 5. Number of banks by category in United Kingdom.

The list of the most recently opened banks in United Kingdom is provided in Table 6.

NameStart Date
 Atom Bank Plc (new)August 2015
 China Construction Bank Corporation London Branch (new)June 2015
 Eurobank Private Bank Luxembourg SA London (new)June 2015
 RCI Banque (new)April 2015
 U.S. Bank National Association (closed)January 2015
 Novo Banco S.A. (new)November 2014
 Industrial and Commercial Bank of China Limited (new)October 2014
 CACEIS Bank Luxembourg (new)September 2014
 Banco Bradesco Europa S.A. (new)August 2014
 Nordea Bank AB (publ) (new)June 2014

Table 6. The most recently opened banks in United Kingdom.

There are 138 branches of foreign banks from 38 different countries in United Kingdom. Table 7 shows 10 countries having the biggest number of branches in United Kingdom.

Country of OriginNumber of Branches
 Germany13
 France11
 United States8
 Luxembourg7
 Netherlands7
 Canada6
 Spain6
 Japan6
 Ireland6
 Italy5

Table 7. Number of branches of foreign banks in United Kingdom grouped by country of origin.

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