UK Banking is the third largest in the world and the first in the European Union. It has predominant foreign presence with foreign banks accounting for over 52% of the banking assets. During the 1990s, it has witnessed large scale consolidation through Mergers and Acquisitions (M&A). While the number of branches has been reduced, branch banking continues to be an important channel of delivery. Other channels like ATMs, Internet banking, corporate electronic banking, interactive TV and mobile telephone banking have been growing rapidly. UK banks are strong, stable and well diversified, while profitability is under pressure due to thinning margins. As and when UK chooses to join European Monetary Union, there are going to be major changes and challenges for the banking system.
United
Kingdom (UK) is situated in Western Europe and has the unique
advantage of a long coastline of about 12,500 kilometers.
It has a population of over six crores and has a constitutional
monarchy type of government. UK has world supremacy in financial
services like banking and insurance, though it is no longer
the number one economy even among European nations. UK has
been gradually tilting towards privatization and its social
welfare programs now receive reduced government funds. With
a GDP growth rate of 1.6 to 1.8% during the last two years,
and moderate inflation and interest rates, the economy has
been performing reasonably well, in the face of challenges
like global slowdown, the bursting of the new economy bubble
and the involvement in Iraq war.
UK
is not one of the six founding members of the European Union
that took birth in the year 1951. It joined the Union only
in the year 1973 along with Denmark and Ireland. However,
it has not switched to the common currency euro and continues
with its domestic currency, the pound sterling. In fact,
it is yet to join the European Economic and Monetary Union,
EMU. Initially, it was its weakness in some of the macroeconomic
fundamentals like fiscal deficit, public debt, inflation
and interest rates, besides exchange rates, that constrained
it from joining EMU. UK is now fairly comfortable on these
parameters but it has second thoughts on this issue now.
The economists in UK now feel that their nation may not
gain by entering EMU, especially in the areas of investment,
employment and growth. British citizens have time and again
expressed through various opinion polls, their reluctance
to join the single currency regime and abandon their pound
sterling. Prime Minister Tony Blair has recently announced
that he would soon conduct a referendum on this issue. Right
now, the chances of a result from the referendum favoring
UK's entry into EMU does not appear to be very bright, even
though the government seems to favor the entry. So the EMU
will continue with the irony of exclusion of UK, a major
power to reckon with, from the EMU system.
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