The UK's trading cities: London

Tue 14 Nov 2023
Posted by: Benjamin Roche

London skyline - City of London

Trade has been the engine of economic growth in London for centuries. From the founding of the city by the Romans down to its modern, finance-focused incarnation, the capital has been defined by its interaction with other nations and peoples via trade.

Imperial wharf

The City of London got its start as a small settlement built by the Romans in 43 AD, then called Londinium.

It grew quickly into “one of the largest Roman cities north of the Alps” as a trading port, with the British tribes soon joining the supply chain to Roman armies.

To facilitate loading and unloading of ships, the Romans built wharves and made changes to London’s banks so significant that it became hard to tell where the artificial parts ended and the natural waterfront began.

The city saw strong imports of pottery from Gaul, roughly corresponding to modern-day France, among other regions.

Fluff piece

The Romans left Britain in 410 AD, centuries after they seized control of the island. The so-called ‘Dark Ages’ followed, when a succession of kingdoms jostled for control of London and the rest of the island’s cities.

Next came the Middle Ages, when London was among a host of towns, including York and Lincoln, involved in international trade with France, Germany and the Low Countries.

A major driver of the medieval English economy was the country’s wool trade, with around 30,000 woolsacks produced by 5m sheep by 1290.

By the fourteenth century, 63% of government tax income was brought in through tax on wool, as it flowed out of the port of London – and through the likes of Southampton – onto European looms in cloth-making towns such as Bruges and Ghent.

The centrality of wool export to the nation’s trade is remembered in the ‘woolsack’ - a bag of wool on which the Lord High Chancellor sits in the House of Lords to this day.

Wool exports were central to the decision of Edward III to make war with France in 1337, beginning the Hundred Years War, as the cloth-making towns in Flanders - to which the UK exported heavily - asked for the King’s assistance against French aggression.

Colonialism begins

Trade continued to grow in London over the centuries, though by the seventeenth century the old wool trade had lost its prominence in London.

That century saw the growth of British colonies in North America and the Caribbean, and the conquest of regions like Jamaica.

As the British Empire began to develop from the piecemeal development of colonies and settlements by private companies and individuals, the British government began to exercise control over colonies in trade and shipping.

The prevailing thought on trade at this time was mercantilism, where exports exceeding imports was the principal goal of trade policy and trade was seen as a stick with which to beat rival nations. It would be another century before this thinking truly gave way to an embrace of free trade and the optimisation of London’s trading potential.

Colonial trade at this time nevertheless meant that extracted resources, like ivory and gold poured into London, and by 1700 the city was handling 80% of the country’s imports and 69% of its exports.

The city also dominated the transatlantic slave trade until the 1730s, when it was overtaken by Bristol, according to Royal Museums Greenwich. A total of 3,351 slaving voyages set out from the city between 1699 and 1807, the year the trade became illegal in Britain.

The end of the seventeenth century also saw the establishment of the Bank of England, a crucial moment in the City of London’s long history as a financial centre.

‘Workshop of the world’

On the heels of colonialism came the industrial revolution, which in the early nineteenth century transformed London into the heart of not only the world’s largest empire but also its international trade.

The City of London became the world’s most important financial centre, while British goods were churned out at unprecedented speed in the country’s horde of machine-powered factories, dominating commerce across the world.

One sixth of the manufacturing workers in the country, then the “workshop of the world”, were based in London, according to Cities of Making. Everything from furniture to jewellery was made in London factories, with most of the country’s imports and exports flowing through the city’s ports.

Corn flaws

Thinking on trade was different in the Victorian era, with moves away from mercantilism towards free trade.

Among the most controversial trade policies in British history were the Corn Laws, a set of mercantilist tariffs imposed in 1815 on corn imports to keep bread prices artificially high for domestic producers – and landowners – following the end of the Napoleonic Wars, sparking “serious rioting” in London.

The repeal of the laws in 1846 benefitted the majority of Londoners who needed lower bread prices – but it also “ushered in a new era of free trade that would characterise British economic policy” for decades to come.

World war

“The final deathblow to a liberal non-discriminatory international trading regime” – that’s what the UK inflicted in 1932, according to a University of Birmingham economics paper, with the introduction of the Import Duties Act.

This piece of legislation put a general tariff of 10% on UK imports, a response to post-WWI anxieties about the country’s growing trade deficit.

In 1914, the UK accounted for 14% of the world’s exports and in London the City held half the world’s foreign currency reserves.

But the city and the country were seeing a “dramatic reversal” of fortunes in the wake of the war as the economic ascendancy of the US began.

Port assaults

London’s trade had been a particular target during the war, with German U-boat campaigns discouraging shippers from using London as a port for trade.

This at least had the effect of sparing the city’s port some damage, leaving it in a position to dominate global trade in the 1920s and 1930s per the Port of London Authority. But the height of its role as the heart of the British Empire’s trading network had passed.

WWII saw more direct and destructive attacks on London’s trade, with almost 1000 missiles and several thousand bombs fall on its port.

The damage was a blow to the capital’s trade, particularly at a time when the country had almost “nothing to export” due to manufacturing’s focus on war, a vast trade deficit with the US and little in the way of foreign currency reserves.

The (peacetime) Big Bang

Post-war reconstruction eventually gave way to economic growth by the 1960s, but the tide turned again as stagnation penetrated the UK’s 1970s economy.

London was at the heart of then-prime minister Margaret Thatcher’s plan in the 1980s to revive the country’s financial fortunes in the face of competition for the City’s spot as the world’s finance hub from New York, Frankfurt and Paris.

The so-called Big Bang of 1986 was the huge and sudden deregulation of the financial sector in the capital, part of an agreement between the Thatcher government and the London Stock Exchange.

Deregulation brought an immediate and enormous boost to the City of London’s financial standing, and contributed to the UK becoming the world’s largest exporter of financial services. Debate continues over its role in the 2008 financial crisis, however.

The modern day

London’s trading status more broadly may have been hit by the UK’s exit from the EU, per a Centre for Economics and Business Research report, but it today boasts a large trade surplus which the Office for National Statistics says “offsets the trade deficits in other regions” of the UK.

That surplus, which accounted for 80.1% of the city’s exports in 2021, is driven by its financial and other service export.

Over the course of 2000 years, London has been part of two vast empires and taken part in two global conflicts. Yet it remains a humming hub for import and export – even if it has traded the pottery for private equity.