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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is chief executive of Lloyds Banking Group and a member of the British Infrastructure Taskforce and the Defence & Economic Growth Taskforce
There has been some sobering news on the state of the UK economy over the past week. Weaker than expected data showed a contraction in GDP in May, the second month in a row of decline. That came after a warning by the Office for Budget Responsibility that the country’s ability to respond to future shocks has been severely weakened.
With global tensions rising and the urgent need to invest in defence and economic resilience, the message is clear: we cannot afford a decade of drift.
But there are strong grounds for optimism. Businesses thrive on certainty and there has been progress here. The government is setting out a 10-year vision for financial services in its sector strategy due out this week.
That combines with its new industrial strategy, which sets out an ambitious economic direction for the UK with £725bn committed to infrastructure over the next decade, and a spending review that signals where the state will invest and where it seeks partners. One year on from national elections, we can see that the foundations are firmly in place for financial services to play its part in growing the UK economy.
There are grounds for optimism from our customers, too. The latest Lloyds Business Barometer records that economic optimism reached a 10-month high in June, with overall business confidence hitting its highest level since 2015. And when I speak to businesses across the country, I hear the same message: confidence is returning, and with it the dynamism that drives innovation, hiring and investment.
This renewed confidence is echoed among finance leaders at some of our biggest businesses. Deloitte’s latest CFO Survey ranks the UK as the joint top global destination for investment, alongside India — a highly dynamic market with which the UK has one of its newly minted trade deals.
There are headwinds to navigate, of course. And the government has increasingly tough, complex and difficult choices to make. But the UK has formidable strengths that should not be overlooked: world-class universities, a thriving tech ecosystem, and global leadership in sectors from life sciences and clean energy to defence and creative industries. The question is how we build on those strengths, and harness optimism into the economic growth that can benefit people across the country.
The government is signalling a welcome shift in the right direction with its focus on aligning regulation with the imperative of economic growth across every sector in the economy. This comes alongside practical steps to unblock planning, boost grid connectivity for electricity generation and foster collaboration between Westminster, local authorities and the devolved governments.
The stage is now set for public and private sectors to work in partnership, and for businesses of all sizes, both domestic and international, to play their part. But to realise this potential, we need a financial system that is fit to deliver the investment the UK needs.
A strong economy needs strong banks. Banks that can lend to every corner of the country, to support aspiration, fuel growing businesses and finance a more prosperous future for our communities — from city centres to coastal towns, from the Highlands to the Fens. A competitive financial services sector is needed to support the sensible risk-taking that allows businesses to grow and individuals to prosper.
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With the right regulatory frameworks and capital put to work for the economy, we can unlock the next wave of growth in the UK: giving small businesses the confidence to invest, raising living standards and equipping people with the skills they need for the future.
We need to update the regulatory regime for financial advice at pace, so more people can save for the future they want; swiftly complete reform of the 50-year-old Consumer Credit Act so it works for today’s customers; and take a clear-eyed look at mortgage regulation — as the Financial Conduct Authority has initiated — so the market works better for people’s long-term needs.
With rapid technological change and bold reforms under way globally, the UK has a golden opportunity to cement its traditional leadership in financial services for decades to come — delivering real benefits for people and businesses alike. From artificial intelligence and new forms of payments to expanding access to financial advice, the potential is vast.
We welcome the positive steps the government and regulators have taken already in a number of these areas. We stand ready to work with them.
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