Compared to September 2008, when the British banking industry began its economic decline, the UK economy is 2.8 percent smaller and 4 percent smaller than the economic peak in March 2008.
The analysis by ONS has shown that the contraction in banking activity is accounted for one percentage point of the 2.8 percent fall.
Banks are only accountable for 5.1 percent of the national output; however, they are to blame for 35 percent of the national decline, making the impact the banks have on the economy completely out of proportion.
The banking industry has contracted by 2.6 per cent this year – this follows a 5.1 percent fall in 2010 and 7 per cent decline in 2009.
Chancellor George Osborne said: "While our economy as a whole has grown by 2.5 percent, the financial sector has shrunk by 4 percent. Take the financial sector out of the equation, and economic growth in the rest of the economy during the recovery has actually been above its average rate of the last two decades."
Philip Shaw, economist at Investec, said that in reality the damage was larger because of the effects on households and small business from restricted finance.
"For whatever reason, you've also got tighter lending conditions for households and small business now... the lack of credit is acting as a drag on the economy,” he said.
In comparison to the drag UK banks has brought onto the economy, retail has continued to provide support although the sector has been hit by a lack of consumer confidence. The industry, which accounts for 5.2 percent of total national output, grew 1.4 percent in 2010 and so far this year is up by 0.2 percent.
formation, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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