Financial and business services in the U.K., based in the heart of the capital, are the country's biggest exportable service and are now likely to be the key sector that will help plug the current account deficit and bring it back to balance.
The sector currently makes up some 55 percent of U.K. service exports and is set to grow its share as its tarnished reputation post financial crisis is wearing off, a report from EY ITEM Club suggests.
Financial and business services along with other sectors such as travel and communications and improved investment income should move the U.K's current account back towards balance by 2018, the forecasting group found.
Since 2007, the U.K. has lost its share in the global trade of services largely down to weakened demand from the U.S., the U.K.'s largest trading partner.
The financial services sector endured "substantial deterioration" in the global financial crisis years, with export growth slowing from an average of 12.8 percent a year from 1998-2007 to just 0.9 percent between 2008 and 2013.
A sharp drop in financial market activity in the immediate aftermath of the credit crunch along with a legacy of increased regulation and higher capital requirements is set to limit the sector's ability to grow as strongly as it did in future, but given the importance of the sector to U.K. services, "the experience could have been a lot worse," the group said.
"There are signs that the financial sector is coming out of the doldrums. With London's reputation having survived the financial crisis largely intact and the U.K. as a whole continuing to benefit from its natural advantages of language and time zone, we expect financial services exports to continue to recover," said senior economic advisor to the EY ITEM Club Martin Beck.
"The UK's dynamic business services sector also looks set to sustain its recent strong performance, having developed a reputation as a world leader in areas such as legal and accountancy services and latterly enjoyed growing success in the creative industries," he added.
The group's forecast also suggests services exports will contribute up to 0.3 percentage points to GDP growth over the next five years, helping the "economy to rebalance as well as providing useful support, at a time when austerity will mean that the public sector is likely to act as a drag."
Meanwhile, a separate study shows business confidence in the U.K. has climbed to its highest level in 22 years according to Lloyds Bank, as prospects for overseas trade have risen and expected capital expenditure is also on the up.
Lloyds said confidence in U.K. business has never been higher since its "Business in Britain" report was launched in 1992.
Expectations for total sales, orders and profits in the next six months, the three key indicators of business confidence, have all climbed further above their long-term averages and now stand at record highs, the bank said.
Some 61 percent of the 1,500 British firms polled said that they expect their orders to increase during the second half of the year while just 5 percent anticipate a decline.
Business confidence improved the most among companies with annual turnover of below £1 million ($1.7 million), while the strongest levels of confidence were for firms in the £2 -5 million, and above £15 million turnover bracket. Some 68 percent of the responses came from businesses with an annual turnover below £10 million.
"Business sentiment is at historically record highs and hence there is a healthy appetite to invest as businesses are much more confident about their future trading prospects," said chief economist at Lloyds Bank Commercial Banking, Trevor Williams.
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