2.3 London: International financial centre

• Aardrijkskunde
• Middelbare school
• havo, vwo
• Leerjaar 3

2.3 London: international financial centre

Learning objectives

After studying this section, you will be able to:

• Explain how London became a financial centre;
• Describe the characteristics and functions of a financial centre.

Organic growth or planned growth?

London: international financial centre

London is a financial centre (= A city with a strong focus on trade and the exchange of capital) of global importance.

The city has a service-based economy = An economy where the tertiary sector is the most important sector (see the next slide).

Number of universities > highly educated population.

London: international financial centre

In London are a lot of financial institutions = Companies that provide loans, insurance and investment assistance.

How was it possible for London to gain such global importance?

Reasons for becoming a financial centre

1. Cultural reason: English is the most important language for verbal communication in international business.
2. Geographical reason: London’s favourable geographical location in the world. It's a bridge between the US, Europe and Asian markets.
3. Historical reason: London was once the centre of an empire that stretched all the way around the globe. 
4. Political reason: Business-friendly environment in the CBD. Taxes for companies are kept low by the UK government, making it an attractive place for companies to be located. Furthermore, the infrastructure of the city is known to work well. Especially good is the access to aviation routes, with five airports located within easy reach of the city. There is also a direct train connection to France.

The City, London’s financial heart.

Talking point
:  There are several cities around the world that are international financial centres. Why are these cities so important to the global economy?

London’s financial industry (F)

The financial sector is the main industry of London: an industry mainly focused on trade and the exchange of currency.

A lot of international companies can be found in London, but some are leaving. You know why?

 The density of jobs in London.

The consequences of the financial sector for London (G)

1.  House prices are very high. Only richer people can afford to live in the city centre;
2. London has attracted people from higher cosmopolitan social classes and has become a very elite area;
3. Modern architecture is often situated next to older Victorian buildings;
4. Many Londoners living outside the centre feel disconnected to this part of the city;
5. As more and more international companies settle in the city, the number of international people continues to increase.

Luton is one of London’s boroughs, which has a more rural feel to it.

London after Brexit (H)

• Referendum 2016: The United Kingdom decides to withdraw from the EU.
• 52% of the British people voted in favour of Brexit, but the majority of London voted to remain in the EU.
• Many international companies now decide to move:
• The European Banking Authority has moved to Paris in March 2019
• The European Medicines Agency is moving to Amsterdam. 
• While London might lose close ties with the European market, other opportunities might well arise, such as the chance to make trading agreements between different countries without EU constraints.

Essence (I)

London is a financial centre: a city where the finance industry has a leading function in the city’s economy. It is an international hub for trade, the exchange of stock and currency exchange. London was able to become an international financial centre due to several factors, such as its history as an international trading hub, having English as its native language and a central position in the world, linking together the United States, Asia and Europe.