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 of a cuckoo in the nest? On the second, how does the growth of London and financial markets generally impact on the Bank’s core functions of setting monetary policy and maintaining financial stability.
Chart 9 compares the 90th, 95th, and 99th percentile with the median and shows that the main change is at the top. If we break that top percentile down further, we see a more dramatic widening. This is not just true of the City or of the UK. The average CEO in the UK earns around 100 times more than the average worker but there is an even wider gap in the US, with the average pay of CEOs over 250 times that of the average worker in 2005, having risen from around 100 times in 1995. In 1999 Eddie George likened the change in the City since Big Bang to Wimbledon. 4 The UK still prospered by providing the venue even though most of the players were foreign. Today I think the Premiership may provide an even better analogy. That is partly because foreigners now own an increasing number of the venues as well as supplying many of the players. That is a striking illustration of Britain’s openness to foreign ownership which sets it some way apart from most other countries both in Europe and America. But it is also because both the City and the Premiership have become the centres of global industries with a dramatic impact on revenues and on earnings. One of my first footballing heroes was Johnny Haynes, the David Beckham of his day as a passer of a football.