Britain has toppled the United States as the world’s leading financial centre, according to the latest league table from the World Economic Forum (WEF), but the gloss was tarnished as the UK scored worse than Nigeria, Panama and Bangladesh for financial stability.

Britain was elevated from second to first place, while the US dropped to third place in the overall rankings, with both countries scoring less well than last year, as the financial crisis exposed their frailties.

Australia rose nine rungs to second place, while Singapore and Hong Kong also did well, rising to fourth and fifth respectively. France and Germany were both relegated out of the top ten.

The UK was buoyed by the relative strength of its banking and non-banking activities, such as insurance, said the forum, which each year gives scores to countries according to factors, policies and institutions that lead to effective financial intermediation — matching savers with borrowers — and deep and broad access to capital.

Britain’s comparative success came despite a poor score for financial stability, one of seven categories of performance on which countries were assessed. For financial stability, the forum identified as problems worries about exchange rate stability, the frequency of banking crises, the manageability of private and government debt and the vulnerability to property bubbles. It ranked Britain 37th out of 55 nations in this category.

This left the UK trailing a string of countries often regarded as economically volatile, including Thailand, Brazil and Poland. Norway, Switzerland and Hong Kong took the three top places for financial stability.

The long dominance of the UK and US at the top of the tables was now in doubt, the forum said. Kevin Steinberg, chief operating officer of the forum, said: “The UK and US may still show leadership in the rankings, but their significant drops in score show increasing weakness and imply their leadership may be in jeopardy.”

Britain’s performance in financial stability was described as “very poor” by the WEF, where it was ranked 44th out of 55 for currency stability, 45th for banking system stability, 40th for the manageability of private debts and 39th for the manageability of government debt.

The WEF, best known for its annual gathering of business and political leaders in Davos, also said that Britain needed to improve its institutional environment, ranking a mediocre 28th for supervisory power and 25th for public trust of politicians. Taxation, where Britain ranked 20th, was also seen as an area of weakness.

Financial development is regarded as crucial for wider economic growth and greater welfare and prosperity. But the forum also pointed out that countries experiencing occasional financial crises still achieved higher overall economic growth than those with more stable financial conditions.

The City of London and Wall Street have been rivals for the crown of top financial centre for years, with some arguing that London had started to overtake New York just before the crisis, only to see glory recede as some American investment banks were seen retreating from London back to New York.

Country by country 2009 (2008)

United Kingdom 1 (2)

Australia 2 (11)

United States 3 (1)

Singapore 4 (10)

Hong Kong 5 (8)

Canada 6 (5)

Switzerland 7 (7)

The Netherlands 8 (9)

Japan 9 (4)

Denmark 10 (n/a)

Source: World Economic Forum

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