UK launches initiative to propel economic growth amid low growth forecasts

January 21, 2025 — In a bold move to propel economic expansion in the UK, the Chancellor of the Exchequer, Rachel Reeves, has announced the creation of the first-ever Financial Services Growth and Competitiveness Strategy. This initiative positions the financial services sector as a cornerstone of the government’s Plan for Change, aimed at enhancing growth and putting more money in the pockets of citizens across the country.

To gather insights and feedback, the Chancellor will host a series of Industry Forums engaging a wide spectrum of leaders from key sectors within the financial services industry, including retail banking, wholesale and international banking, insurance, asset management, fintech, and mutuals and cooperatives. These forums will occur throughout January and February, providing a platform for industry executives to discuss the critical elements necessary for sustained growth and competitiveness in the sector.

“The financial services sector is at the heart of this mission,” said Chancellor Reeves. “It supports economic activity and finances investment across the country. Growth is my number one mission, and it’s the only way to put more money in people’s pockets.”

The financial sector of an economy plays a vital role in contributing to economic growth by facilitating the flow of funds, promoting innovation, and fostering economic development.

The financial sector acts as a conduit for channeling savings from households and enterprises into productive investment. This is achieved through a variety of financial instruments, including loans, bonds, and stock market investments. By mobilizing savings and allocating them to productive sectors, such as manufacturing, construction, and agriculture, the financial sector enables businesses to expand their operations, hire more employees, and increase productivity. This, in turn, leads to economic growth, as increased productivity leads to higher output and employment levels.

The financial sector also fosters innovation and entrepreneurship by providing access to capital and expertise for start-ups and small businesses. By enabling innovative entrepreneurs to secure funding, the financial sector supports the development of new products, services, and technologies, which can lead to significant economic benefits. For example, the emergence of fintech (financial technology) companies has revolutionized the way financial services are delivered, making it easier and more convenient for customers to access financial services.

Furthermore, the financial sector promotes economic development by facilitating international trade and investment. Through the provision of trade finance, foreign exchange, and other specialized financial services, the financial sector enables businesses to engage in international trade, which can lead to economic growth by increasing exports and attracting foreign investment.

Additionally, the financial sector plays a critical role in promoting macroeconomic stability by providing a framework for governments to manage their finances and mitigate economic risks. By providing access to capital markets, the financial sector enables governments to borrow funds at competitive interest rates, reducing the fiscal burden on taxpayers and promoting economic stability. The financial sector provides tools for managing exchange rates, inflation, and other economic risks, which can have significant impact on economic growth.

Chancellor's initiative comes after IMF earlier in the month estimating UK economy to grow only at 0.9% in 2024. IMF's projections for UK economic growth in 2025 and 2026 are 1.6% and 1.5%, respectively.

UK Government earlier in he month announed its plans to modernise the public sector with AI and digital to gain efficiencies and save costs.

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