London’s status as a world city is unchallenged. In the ascendant for more than a decade, it is the powerhouse of the UK economy, with a financial services industry that retained its global status even in the wake of the financial crisis. The world’s wealthy and upwardly mobile have beaten a path to the city, attracted by its high quality of life, job opportunities, culture and an ineffable sense of buzz. London is the place to be.
But this golden period, crowned by last year’s Olympic Games, cannot be taken for granted. The City of London’s supremacy in Europe is under pressure from Brussels, while overseas competitors are sharpening their offerings to take advantage of Asia’s booming economies. London’s commercial and political leaders are becoming more vocal in defence of its status.
Boris Johnson, mayor of London, says: “Even in Paris, even in Berlin, they understand that what Europe needs is a global financial centre that can go toe to toe with New York, raise capital and compete with the best of the world. They have that centre in the EU here in London.”
The capital is an ancient trading centre with a string of natural and historic advantages: a convenient timezone, the certainty of its legal system, a relative lack of corruption and its command of English, the language of business. Its arts and culture, good universities, open spaces and relatively low crime rate have made it a magnet for incomers from home and abroad.
It has also consolidated its grip over the UK economy. London now accounts for 22 per cent of the UK’s gross value added – 37 per cent if combined with the southeast region.
Gerard Lyons, chief economic adviser to Mr Johnson, says this tempers its relationship with the rest of the UK and the world. “London is like Janus, the two-faced Roman god. It has to look outwards to the world but also domestically. It is the great barometer of the UK economy but at the forefront of positioning the country globally.”
The city’s international profile was elevated by the pizzazz of the Olympics, embellished by Mr Johnson’s verbal showmanship. Negative perceptions among older people were dissipated by an exuberant games that showed the capital could deliver the world’s biggest sporting event.
The games also gave London an opportunity to resolve infrastructure problems, with £6.5bn invested in a transport system whose Victorian elements had been creaking beneath 21st-century traffic. Rail improvements were brought forward and a vast new transport hub created at Stratford.
But the success of the games is also predicated on a meaningful legacy. Question marks remain over the future of the Olympic Stadium – a problem for other host cities – and legacy planners have given themselves 20 years to turn the Queen Elizabeth Olympic Park into a new London neighbourhood with 8,000 homes.
The park is one of several big development projects that are changing the face of the city. The vast brick edifice of Battersea power station – for 30 years a symbol of the city’s problems with regeneration – is set for revitalisation as part of the 195ha Nine Elms development. Other zones slated for transformation include King’s Cross, Victoria, Earls Court and Paddington.
For Londoners, this is a mixed blessing. Foreign buyers have made a beeline for the new developments and account for more than half of purchases of the city’s off-plan properties, says estate agent Knight Frank. They are part of a wave of overseas wealth that has flowed into London since the financial crisis. But with many buying for investment or occasional use, the trend has done nothing to alleviate the city’s perpetual shortage of affordable homes.
If London is now straining at the seams, it will soon be bursting. The population will swell from 8.17m to more than 9m by 2020, according to projections last year by the Office for National Statistics. No European city except Moscow has yet passed this milestone. But while population expansion is often associated with economic growth, the trend will ratchet up pressure on public services already stretched on the rack of deficit reduction.
London traditionally has relied on growth in financial services to pull it out of such troubles. But its ability to do so may be threatened by two factors: rival upstarts and the fallout of the financial crisis. The eurozone’s efforts to regain stability through closer fiscal and political ties have sent a chill wind through the City, which fears it will be frozen out of decisions affecting its biggest market. Foreign competition from Asian centres such as Singapore, as well as younger hotspots in China, is also on the rise, a trend the City is countering through initiatives such as a bid to become a centre for renminbi trading.
The threat bears down not only on banks, but also on the ecosystem of finance-related businesses that thrived in the boom years, from lawyers, recruitment agents and property developers to wine bars and car dealers. Some sectors, such as insurance, have remained in relatively rude health even as UBS, Citigroup and other banks have shed thousands of workers. But the fortunes of others are closely tied to a healthy growth rate in finance.
As a cluster of expertise, the City stands apart from other financial districts in its single-minded focus on business. Permanent residents are discouraged and its bylaws fiercely guarded by the City of London Corporation, its local authority – such as in its exemption from government moves to allow offices to be turned into homes.
On its northeastern fringes, a new sector has bubbled up, focused on digital and information technology. Known ironically as the Silicon Roundabout, the area has been rebadged as Tech City by a government keen to promote, if not take credit for, the emergence of this new source of growth. Research by the Centre for London think-tank puts the number of media, technology and communications businesses in the area at 3,200.
For some, the phenomenon demonstrates London’s continued ability to present a new face to the world. But few believe it could replace the horsepower of the City, should it fall to external pressures.
Is London at such a tipping point? Tony Travers, London expert at the London School of Economics, says the city’s imminent demise has been regularly heralded over the decades. In the 1980s, a Greater London Council report warned of an impending fall in the city’s population, with grievous economic repercussions.
“Lo and behold, at exactly the same time London’s population turned a corner and has grown ever since,” says Mr Travers. “Turning points are rarely predicted.”