City's overseas earnings help trade gap narrow by pounds 20bn

The City of London's overseas earnings set a record last year, contributing more than pounds 20bn to Britain's balance of payments.

Financial services rescued the balance of payments from being heavily in the red and accounted for almost all of the overseas surplus in private sector services.

Banks and insurance, including Lloyd's of London, were the biggest contributors in 1995, although pension fund earnings grew rapidly. The total financial sector earnings of pounds 20.4bn were up from pounds 18.8bn in 1994, and more than double the surplus a decade ago.

Yesterday's figures, published by British Invisibles, follow the recent decision to present trade in services more prominently in official balance of payments statistics. Exports of services were only about a third as big as exports of goods last year, but services generated a surplus of more than pounds 6bn compared with the deficit of nearly pounds 12bn in trade in goods and an overall balance of payments deficit of just under pounds 3bn.

The news coincided with an announcement by Howard Davies, deputy governor of the Bank of England, that the Bank intends to improve its collection of information about the service sector of the economy. It will ask its regional agents to monitor spending in restaurants and hotels and will support a new nationwide survey on services, to be published for the first time in the autumn.

The Bank has been concerned that existing statistics do not provide enough information about services, which make up two-thirds of the economy and have recently been growing significantly faster than industry.

Welcoming yesterday's figures, Alison Wright, director general of British Invisibles, said: "These results reflect well on London's continuing role as a leading international financial centre." They showed the financial sector was essential to the UK's competitiveness, she said.

Service earnings accounted for nearly two-thirds of the City surplus last year, at pounds 12.2bn. The rest consisted of investment income of pounds 8.2bn. Both were pounds 0.8bn higher than in 1994.

Banking and insurance provided the bulk of the earnings, with contributions of pounds 6.2bn and pounds 6.0bn respectively.