Soaring City bonuses 'hit £8.8bn'

Huge City bonuses are seen as fuelling house price inflation.

More than 4,000 City workers will take home £1m bonuses this year as the stock market has soared and takeover deals have surged, a study suggests.

According to the Centre for Economics and Business Research (CEBR), the value of bonuses paid to London's financial elite will rise 18% to £8.8bn.

High-profile takeovers of British firms have helped push the FTSE-100 index to a five and a half year high.

But the bonus culture is seen as one factor pushing up London house prices.

According to Halifax, prices in the capital rose 1.2% in the last quarter and are 8.5% higher than a year ago.

Strong incentives

In its latest quarterly business forecast, the CEBR said it expected about 4,200 staff at banks, law firms and other professional services businesses to pocket a seven-figure bonus this year.

Continuing strong merger and acquisition activity in 2006 is driving the stock market higher Jonathan Said, CEBR

The number of people working in the financial services sector in London is believed to be at a record high of about 335,000.

The CEBR said the influence of aggressive private equity businesses and hedge funds - which have been behind much of the takeover activity in the market - was being felt in terms of remuneration.

"Continuing strong merger and acquisition activity in 2006 - which is highly bonus-oriented - is driving corporate earnings up and the stock market higher," said Jonathan Said, CEBR chief economist.

"Looking forward, City bonuses are likely to trend upwards - though at a slower growth rate - as an increasing number of highly incentivised private equity firms based in London continue to squeeze company costs and drive corporate profits."