Outlook: Good news for London could be bad

GOOD NEWS. London has consolidated and improved on its position as the world's leading international financial centre. Bad news. As a result, it is going to be hit that much worse by the present contraction in global capital markets.

New figures from the Bank of England show that London is still streets ahead of its rivals in terms of turnover for foreign exchange and over- the-counter derivatives.

In foreign exchange, for example, the UK market's average daily turnover of $637bn was more than the next three competitors combined. In over-the- counter derivatives, London's daily average trade of $171bn is almost twice as much as the US figure. And London's growth rate in these complicated instruments is also mind-boggling - a thumping 131 per cent over the last three years. This figure is only bettered by the Germans with 162 per cent and the Swiss with a huge 256 per cent increase, but they are coming at it from a much lower base.

All this is very heartening, as well as being an apparent vindication of the belief that London is now so far ahead of its rivals in Frankfurt, Paris and Milan that it cannot be caught. The trouble is that these figures were compiled in April. Since then the world has moved on a touch. The obvious problem with London's great dash for growth in derivatives is that it leaves the Square Mile more exposed to a downturn than any other financial centre.

Britain is already in recession as far as manufacturing is concerned and you don't have to spend any more than five minutes with the investment banking community to realise the City is heading that way at a pace of knots too. The Bank of England is right to feel pleased with these figures, but they aren't going to look so hot this year.