How the UK can win back financial competitiveness
The report “The UK Financial Services Sector Has Lost Its Edge—Here’s How to Win It Back”, published by Boston Consulting Group (BCG), argues that while the UK financial sector retains global strength, it has been suffering from structural deterioration since the global financial crisis, which has weakened finance’s role as a driver of economic growth. Against this backdrop, lending to UK businesses has fallen to its lowest level in almost 30 years, standing at 59% of GDP in the third quarter of 2025, compared with close to 90% at the 2008 peak. BCG attributes this trend to a combination of excessive regulatory risk aversion, weak economic growth, technological underinvestment, and declining competitiveness compared to the US and Asia. The report sets out a broad range of concrete proposals to reposition the sector through AI, digital assets, and a new relationship between regulators and the financial sector.
Key highlights
- The UK financial sector has lost structural dynamism: While the UK remains the world’s second largest exporter of financial services and one of the leading global financial hubs, sector productivity has declined sharply since the financial crisis. Financial services’ contribution to UK productivity growth fell from +3.5% before 2008 to -1% between 2019 and 2024. The report also estimates that if pre-2008 trends had continued, the sector would now be 40% larger and would have contributed an additional £100 billion to the UK economy.
- Shareholder returns and lending also reflect declining competitiveness: A £100 million investment in UK financial services stocks in 2011 would today be worth £185 million less than an equivalent investment in US financial institutions. At the same time, lending to businesses and SMEs has structurally weakened, while UK banks have become increasingly dependent on net interest margins amid stagnating fee income generation.
- Regulation has prioritized stability over growth: BCG argues that the post-crisis regulatory framework institutionalized strong bias towards risk aversion. UK banks maintain higher liquidity and capital ratios than their US peers (for example, a Liquidity Coverage Ratio (LCR) of 152% versus 120%-140%, and a Common Equity Tier 1 (CET1) ratio of 15.4% versus 13.4% in the US). According to BCG, reducing capital buffers closer to US levels could release up to £440 billion to support economic financing. In addition, the report notes that compliance headcount increased by more than 500% between 2009 and 2021, while certain consumer protection regulations may have unintentionally reduced access to financial products, investment advice and even financial education.
- AI and digital assets will redefine financial competitiveness: The report identifies agentic AI, tokenization and stablecoins as the key strategic transformations that are reshaping the sector. It warns that the UK risks falling behind the US, Singapore and Switzerland unless it accelerates digital infrastructure, regulatory clarity and technological capabilities.
- The report calls for a new compact between government, regulators and the financial sector: Financial stability remains essential, but BCG argues that growth, innovation and competitiveness should carry equal weight in the regulatory and supervisory agenda. The report proposes a wide range of detailed measures, from strengthening cost-benefit analysis for new regulations to accelerating regulatory approval timelines in order to restore the sector’s ability to support investment and economic growth.
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