...if the UK banking system shrinks? Will we go back to bashing metal and digging coal?
April 30 (Bloomberg) -- Britain’s financial industry will shrink to as little as 7 percent of gross domestic product as the global crisis forces foreign banks to retreat from London, former Bank of England policy maker Willem Buiter said.
“Financial services in the City grew in the U.K. from 5.5 percent of GDP in 1996 to about 10.8 percent in 2007,” Buiter said today at a conference in London on the future of its financial district, known as the City. “It will probably go back in a steady state to something halfway there, to around 7 or 7.5 percent. That’s a big adjustment.”
The British economy contracted the most since 1979 in the first quarter as business services and finance shrank at a record pace. The depth of the global crisis has cast a shadow on the U.K.’s prospects for recovery because of its dependence on banking and financial services as motors of growth.
“We are seeing the repatriation of cross-border banking,” Buiter said. “This is inevitable” and “bad news for London because this is the home of cross-border banking.”