The focal point of the paper is to understand the impact of the credit crunch and its impact on the UK financial services industry. It would also be seen if this affects the UK consumer or if it is beneficial for them. It can be stated that due to this crisis several sections of society are affected. The present crisis has snowballed due to the imprudent handling of rating agencies who are supposed to protect the average investor, financial innovation that has gone all wrong, and inept market regulation. Consumers are now threatened by many negative shocks: falling home values, falling home equity, rising debt servicing ratios, a credit crunch in housing and consumer credit, rising oil, and gasoline prices, weakened labor markets, and, inevitably enough, a falling stock market.
The result of this crisis has weakened the profits of financial services industries and thus they are not able to invest on a large scale. Nick Heath reports, “CB Richard Ellis found that not one bank or law firm chose to take up space in London, with new space split between approximately two-thirds retail and one-third technology.”(Heath, 1, 3) Thus, it is obvious that financial services companies are facing a great problem in the context of finance. The financial crisis in the UK is seen to fall into a full-scale recession. In its wake, it was found that a large number of about 20, 000 jobs in the City were lost. Credit rating agencies in London have drastically scaled down for job growth by almost 5 % after a correction in their initial estimate that jobs would remain static. Around 400,000 work in the financial districts of London. This would mean that the resulting 20,000 jobs lost caused the already depressed corporate property segment of the market to sink further on news of the scale down on jobs. (Zimmerman, 112)
Under this condition, the financial services industry had no other way but to consolidate the entire scenario by service charges and finance rates. One of the favorite modes of operation in cost reduction is outsourcing. Under this circumstance, it was found that “Almost half (41 percent) of 70 financial services managers questioned in a survey by the Management Consultancies Association (MCA) and the British Bankers’ Association (BBA), expect to increase their current levels of outsourcing because of the credit crunch.” (Heath, 1, 2) Additionally, it was also reported that around 90% of the managers felt it was inevitable.
The fundamentals of operation thus show a drop in cost from the point of view of the industry. This, however, is not encouraging for the employees of the industry but the reduction of cost indicates the sustainability of the companies in the long term. This is backed by competition to sustain the existing financial service markets too. For this reason, the companies are competing to reduce charges and interests levied on the customers. Thus, even under the conditions of crisis, the ultimate beneficiaries are the customers of the financial services industry.
In conclusion, it should be stated that the basic approach of the industry is to sustain itself during a time of crisis. However, the crisis has resulted from an easier and cheaper mode of service for the users. On, one hand outsourcing has made it possible to sustain the industry and on the other hand reduction of price has enabled the industry to lure customers with added benefits.
Works Cited
Heath, Nick. “Credit crunch boosts outsourcing”. Silcon.com. 2008. Silcon. Web.
Heath, Nick. “Credit crunch hits London datacenters”. Zdnet.co.uk. 2008. Web.
Zimmerman, David. Forecast 2009: Financial Markets. New York: HBT, 2008.