A nation of bankers

Here is another one of those scary charts that tells us that the UK economy is in deep trouble. It illustrates UK employment and it tells us two things. First, only one person in ten is employed in manufacturing. Second, two workers in ten are employed in the financial sector. That is right; for every one person actually making something physical, two people are in the money lending business.

Here we come to the big unmentionable problem; financial sector employment. As of the end of 2007, 6.5 ,million people were employed in financial services. With the credit crunch, the sector is about to shrink dramatically. If it fell back to the employment levels of 2000, over one million jobs would go. If it shrank to its 1995 level, almost 2 million jobs would disappear.

These are fearful numbers, but how can this sector continue to employ so many people when lending volumes have contracted so sharply? For example, mortgage approvals are down by at least 50 percent in one year. In principle, that should mean that mortgage lending officers are working only half as hard as they were 12 months ago. Or to put it another way, banks should be able to fire half their lending officers without any significant loss of efficiency.

We are about to learn a bitter lesson. Economies should always diversify. The UK became overly dependent on just one industry - financial services. That industry is now in deep trouble. It will contract massively and therefore the upcoming recession will be deeper and more painful than it should have been.