1 ), and in kensington and chelsea average house prices have risen by almost 40 % since the start of 2005, compared with 20 % for greater london as a whole. eca international published a survey comparing average monthly rents for a 70 - square metre unfurnished flat in the largest cities and showed london over € 2, 100, compared with new york around € 1, 750 and paris below € 1, 500. the figures on output also show that london has been growing relative to the rest of the country ( chart 2 ), and that has reflected the growth of financial and business services compared with other tradable sectors throughout the uk ( chart 3 and chart 4 ). and despite the fall in oil production in the north sea, we have seen a rise in the real exchange rate by over 15 % when comparing the period 1987 - 1997 to 1997 - 2007, although of course the financial sector would not have been the only factor behind that rise. more immediately, the gdp figures in may showed that financial intermediation grew by 6 % in the sixth months to 2007 q1 – an annual rate of over 13 %. that is not the same as the city of course ; but there is every reason to think the city has been growing at least as fast as the rest. however, while the success of the city is currently one factor in these trends, it is not the whole story. for a start there is a lot more to london than finance. there are other successful industries and, on the other hand, london is home not just to the wealthiest boroughs but also to some of the poorest and most deprived areas in the country. as a result it has one of the highest regional rates of unemployment overall. secondly employment and profits in the city have been highly cyclical. on scale first, a recent estimate put the total number employed in “ city ” jobs, including supporting professions like lawyers and accountants as well as bankers and asset managers, at around 340, 000. that amounts to about 9 % of the total in london ; significant but still lower than the number in distribution or in government services. and the growth of employment will continue to be the net result from the expansion of activity and from the economies made possible by it and by the relocation particularly of back office work to cheaper areas elsewhere in the uk or abroad. the jobs figures understate the importance of the sector in the economy because on average pay may be twice as high in the financial sector as in the rest of the

john gieve : london, money & the uk economy speech by sir john gieve, deputy governor of the bank of england, at the university of surrey, guildford, 26 june 2007. * * * introduction the past year has been one of rapid growth and record profits for much of the financial sector worldwide. the strength of the world economy has provided a favourable wind but the spectacular growth of derivative markets and the spate of leveraged buy outs have also fuelled the growth. and, of course, london has been at the centre of the story. in a speech in march i discussed the renewed ascent of london as a centre of international finance and concluded that it was based on powerful economic forces which were likely to persist. 1 i showed how the leading position london built up in the days when britannia ruled the waves gave it a strong comparative advantage based on language, law, time zone and, above all, by a concentration of expert labour. this allowed london to maintain an important role in international finance even while britain ’ s overall economic and political position was eroded. in the last twenty years we have seen a resurgence in the city which has established a strong position not just in traditional markets like foreign exchange, where its share is around 30 % of trading, but in new products, with a share in otc derivatives markets over 40 %. 2 the rapid growth of hedge funds in the west end is the latest example of the innovation that this cluster of financial skills has produced. you know something must be happening when the mayor of new york commissions a review of the threat london poses to new york ’ s position. london ’ s recent growth certainly has a cyclical element but it also reflects two more structural changes – the removal of barriers to international capital movements and the advances in information technology. these have led to a growing role for international capital markets compared to national banking and to a growing concentration of those markets in a few hubs among which london and new york are dominant. and this finance revolution is still underway. it is far more advanced in the us than in europe and in europe than in asia. in the absence of disasters therefore london, as the preeminent centre outside the us, can look forward to a long period of fast growth and expect its share of the uk economy to increase. this evening i want to discuss the implications of that trend for the uk economy and for economic policy. on the first, is london a goose laying golden eggs for the rest of the country or is it more