is london just on the crest of a wave or is it swimming with a persistent stream? putting it into perspective to start with, how important is the city? is its press profile greater than its real contribution to the economy? the city ’ s output is hard to measure. 2 we know that financial intermediation as a whole accounted for about 8. 5 % of uk gross value added in 2005. and a recent estimate 3 of the professional services supporting financial services accounted for a further 3. 6 % of economic activity in 2005, giving a total of some 12 %. that compares with around 14 % of gdp for the uk manufacturing sector and the jobs in financial and business services taken together have increasingly outnumbered those in manufacturing. “ sustaining new york ’ s and the us ’ global financial services leadership ”. report by mckinsey & company to mayor michael bloomberg of new york and senator charles schumer ( pages 14 and 54 ). indeed the ons has announced that it will be revising its estimates of the level and composition of gdp to incorporate changes to the measurement and treatment of value added for banks and to take better account of in - house software development. international financial services, london. “ international financial services in the uk ”, november 2006. and since 1999 financial services and insurance taken together have accounted for over 20 % of the uk ’ s exports of services. so it is clear that the financial sector is an important industry for the uk. but financial intermediation covers a great deal more than the city. retail banking and insurance, like other retail services from restaurants to hairdressing, is widely dispersed across the country. in general one would expect this part of the industry to reflect the size of the population and their wealth. to the extent that the uk ’ s industry may be relatively efficient and competitive, we may even have fewer people engaged at this end of the business than some other countries. while in 2003 the share of gross value added from financial intermediation was a little higher for the uk than for france, japan or germany ( 5 %, 7 % and 4 % respectively ) there was not that big a gap and the figures for the us were about the same as the uk ( 8. 5 % ). it is london ’ s position in the wholesale and international markets that is special and it is harder to get a handle on that. a recent estimate put the total number employed in “ city ” jobs at around 320, 000. 4 there are other significant

pressures? the creation of canary wharf, the expansion of office space in the square mile and the west end has helped to allow the rapid expansion of recent years. but of course london is an expensive city with high land and labour costs. so we have seen financial firms outsourcing functions like it support, systems development and hr both within the uk and europe and to india. that too seems likely to continue so further growth of trading and management in london may well not lead to proportionate growth in jobs. on current trends we might expect a greater concentration of high value, high skill jobs in london. conclusion so back to my question : wave or persistent stream? the answer is, as you will have spotted, both. readers of the bank ’ s financial stability report ( next edition due next month ) – or those that have read the financial news – will know that the financial markets have been buoyant recently ; in particular the premia for risks in the credit market are very low and profit growth and bonuses have been spectacular. some of this may well be the crest of a wave. however, for the reasons i have set out this afternoon, london is also benefiting from a longer lasting and a strong current. we may expect that cycle to turn at some stage – and london will be affected because of its international position. but there are good reasons to expect london to further enhance its position as a global financial centre in the long term. and that will have implications for the rest of the economy and the risks it faces. it will continue to affect the labour market, the housing market, and the distribution of wealth and income. and it will further sharpen the dependence of the british economy on wider international movements in financial markets. i plan to return to these implications in coming months. mckinsey global institute, mckinsey & company's economics research institute.