The banking sector is definitely one of the important industries of any economy. It is furthermore considered to be quite sensitive to political stability. The UK economy, after the recent conclusion of the global economic downturn, is recorded to face instability in its political environment. Some major conflicts arising in the economy, like the coalition between the Conservatives and the Liberal Democrats, is based on the issue of budget. The budget, according to the economists’ point of view is certainly going to lead to an imbalance in the financial sector, affecting the banking sector of the economy. For instance, the budget forecast of 2010 is aiming to reduce its government borrowing, in turn, cutting off the public spending which shall have a direct impact on the banking sector. From a wider perspective, the economic factors that influence the banking industry are the debt ratio, the interest rates, the GDP growth rate, inflation rates, etc. However, the GDP rate of the economy was recorded to grow with the rate of 0.8% until the third quarter of the current fiscal year as depicted in the image below. Moreover, as the data states, the inflationary rate in terms of RPI is also at a growing rate of 4.7%, which is again a matter of concern for the economy though excluding the mortgage interest payments. Apart from the inflationary rates and the GDP growth, the economy is also suffering from the lower level of earnings in the current year. Statistically, representing the fact, the earnings of the economy has decreased from the last year but has shown a positive growth of 2.2% in the third quarter compared to 1.7% earnings in the first quarter (Statistics, 2010).

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