What crisis? City workers handed £7billion bonuses

A survey has revealed a third of City workers' bonuses are up on last year and almost three quarters of staff questioned said their end of year windfall met or exceeded their expectations.

It means that around £7 billion will be handed to City and Canary Wharf workers over the next two months, underpinning the property market and helping London's restaurants, bars and shops ride out any downturn in the national economy.

As cheques start being paid into bankers' and traders' bank accounts, it showed that the scale of bonuses have been largely unaffected by the global credit crunch.

The bonus round - the second best on record - comes against a bleak backdrop with Bank of England Governor Mervyn King last night warning of a drop in living standards due to rising inflation and slowing economic growth.

Estate agents say £5 billion of City bonus money was pumped into the London property market last year as a result of a record bonus season.

Forecasts had suggested only £2 billion would be spent on property this in the West End with shops and restaurants reporting surprisingly buoyant business. Department store Fortnum & Mason said that trading had got stronger since the start of the year and dozens of top restaurant openings are planned for 2008, another sign of confidence.

Although the exceptional growth in the property market has ended, there are few signs of a major downturn.

Today's study by City headhunter Morgan McKinley found 71 per cent of people in the financial services industry reported bonus pots similar to, or larger than, in 2006-07.

Robert Thesiger, chief executive of Morgan McKinley owner Imprint, said: "Following on from a record bonus round in 2006-07, speculation surrounding this year's bonuses was enormous, particularly given the significant year. However, putting the impact of the credit crunch aside, 2007 was still a strong year for financial services and, for the majority, bonus payouts in middle and back office functions appear to reflect this.

"These findings show that most employees received a similar or higher bonus payout than last year and, while there are always some exceptions, there does not seem to be large-scale discontent among financial services professionals. Investment banks have managed expectations well."

The booming pay packets will be closely monitored by Chancellor Alistair Darling as he seeks to gauge the strength of the British economy ahead of his first Budget speech on 12 March.

The Bank of England Governor gave a bleak assessment of the economic outlook yesterday, warning that Britain must face up to a "genuine reduction in our standard of living."

But City analysts said the financial services industry had so far weathered the storms well. Headhunters reported that, outside areas of business caught up in the credit crunch, most investment bankers had done well in 2007 and their employers were prepared to pay generously to keep them on board.

Morgan McKinley said almost 11,000 candidates were chasing 8,000 City vacancies last month. The average City salary rose by five per cent in the 12 months to January to £53,246.