When London Burned to Sticks: The Economic Impact of the Great Fire of 1666

The Great Fire of London is a significant marker in UK history. But how did economic activity and wealth inequality change in the City of London and surrounding areas in the decades that followed?

A new CAGE research paper by Philipp Ager, Maja U. Pedersen, Paul Sharp, and Xanthi Tsoukli investigates the economic and social consequences of the Great Fire of London in 1666. By analysing the location of economic and financial activities, as well as measures of economic inequality before and after the fire, the research shows how the disaster influenced the movement of different social classes and reshaped the urban landscape.

By the 1660s London was by far the largest city in Britain and the third largest in the Western World. It was a major cultural, social, and economic centre with an estimated population of 300-400,000 - a status threatened on Sunday 2^nd September 1666 when the great fire broke out.

Once the fire was finally extinguished ten days later, 90% of homes in the city were destroyed, leaving 100,000 people homeless.

The impact of the fire was felt in various ways due to distinctions in wealth and social status. By analysing the timing of the fire and the differences between parishes which were affected and unaffected by the fire, the research highlights how the centres of economic activity and social structure changed.

While there was a rapid recovery in the City of London after the fire, the evidence indicates that by 1690 there was a significant shift in economic activities towards the City of Westminster. Some markets moved westward, while financial services (so-called goldsmith bankers) largely stayed within the City.

Analysing the London Hearth Tax records from 1666 and 1675, the team traced significant changes in wealth distribution and housing structures within the city. Their research reveals that wealthier households returned to fire-affected areas, resulting in an increase in the average number of hearths and a decrease in the measure of household inequality. This decrease in inequality in a population (known as the Gini co-efficient) is likely due to the prohibitive costs of rebuilding for poorer people, especially following new building regulations. It suggests that the fire’s impact reshaped the City’s social fabric and residential patterns.

Commenting on the findings Paul Sharp, Professor of Economic History at the University of Southern Denmark and CAGE Research Associate said:

“Although the City of London was quickly rebuilt, our access indices to markets and financial services show that neighbourhoods outside of the city walls became more attractive after the fire. This was in part driven by a movement of the low- and middle-classes, as well as markets, to outside the affected areas. The location of financial services was relatively unaffected, however. A higher average number of hearths and a falling Gini coefficient suggest that the City of London became richer and more equal after the fire.

“While the temporary destruction of most of central London changed the social structure within the City of London and probably contributed to the shrinking of the city centre’s population after the Great Fire, it was also in part responsible for the growing importance of Westminster and other neighbourhoods in the Greater London area during the late seventeenth century.”

Placing the Great Fire within the broader historical context of London's development as a commercial centre, the study provides a detailed historical analysis of how disasters can influence urban development and wealth distribution - and the resilience of cities to physical damage over time.

• Read the full research paper: When London Burned to Sticks: The Economic Impact of the Great Fire of 1666

About the Authors

Philipp Ager is Professor of Economics at the University of Mannheim

Maja U. Pedersen is Assistant Professor in Economic History at the University of Southern Denmark

Paul Sharp is Professor of Economic History at the University of Southern Denmark

Xanthi Tsoukli is a Postdoctoral Research Associate at the University of Bamberg