Global City of the Year: London

The classrooms of Shoreditch's Rochelle School are now the studios of artists, photographers, and deejays, as well as fashion designers including Giles Deacon and Luella Bartley. More local artists and designers arrive at lunchtime to eat in the restaurant that's set up in the old cycle shed. (Press the buzzer marked CANTEEN beside the old BOYS ENTRANCE.) Deacon stages his fashion shows in what was once the school hall, which also houses art exhibits and the indie publishing fair Published and Be Damned. A short walk away is the Tea Building, an old tea warehouse on the corner of Bethnal Green Road and Shoreditch High Street. Empty for much of the 1990s, it's now home to bars, galleries, and the offices of companies such as Poke and the advertising agency Mother -- which occupy the rear area that they renamed the Biscuit Building (a nod to the inseparability here of tea and biscuits).

Next door but one, in another once-derelict tea warehouse, is Shoreditch House, which has been London's coolest private club since it opened last summer. It boasts a spa, a bowling alley, and a posse of paparazzi waiting hopefully on the sidewalk for Amy Winehouse to stumble out. The pièce de résistance: the open-air swimming pool on the roof, where the hardy splash gamely in the rain and others tuck into fashionably old-fashioned British dishes such as suckling pig while enjoying vertiginous views across the city. "The community is very joined up," says Simon Waterfall. "There are events where we share stuff and generally get drunk. Then it's all down to the pub for a pint and a bag of nuts. Not competitive, just mates who have grown up in the industry together, having a chat and inspiring each other to do better."

Can London's creative resurgence continue? Dark clouds are descending on the city's cranes. Rents are rising, and if Shoreditch House's swimmers look down onto the other side of Bethnal Green Road, they'll see a giant construction site where Bishopsgate Goods Yard once stood. Local artists and designers are fighting it -- led by Turner Prize winner Rachel Whiteread -- but if the developers win, a glass skyscraper will be built there, and the creatives will be priced out of the neighborhood that they saved only a few years ago.

The cost of almost everything else in London is rocketing too. "The price of things here is astronomical, and that's a huge, huge negative," Bailey says. "There's always a worry that people will leave for cheaper places. I have friends who have moved to Manchester and Berlin, because it's so expensive to live and work here, though they still hanker after London."

At the same time, the British economy is weakening, and the government's threats to crack down on tax loopholes has prompted some non-doms to leave, which bodes ill for art sales. But a recession might not be all bad. It could alleviate the pressure on property prices, and British creativity has often thrived in hard times: from Charles Dickens's depictions of mid-19th century poverty to the 1970s punk movement to today's "grime" deejay scene (London's take on hip-hop).

Another, less predictable worry is the government's newfound enthusiasm for the creative industries. Few people would deny that London's cultural life has been enhanced by the New Labour government's support for the arts -- restoring historic monuments, building new ones like Tate Modern, and subsidizing free entry to national museums -- but the creative industries have blossomed largely by being left to their own devices. "They've been completely entrepreneurial, and in many ways, that's the most natural, healthy, and sustainable way for them to develop," says the Frieze fair's Slotover. "It's great that government is taking the creative industries seriously, but what can they actually do?"

The government reckons that its recently announced plans for a creative apprenticeship program and the launch of an annual creative forum in London might help, but Slotover isn't the only skeptic. "I'm not holding my breath," adds Waterfall. "It's difficult for government -- local or otherwise -- to get to the bleeding edge of creativity." The government's credibility hasn't been helped by general disappointment with the preparations for the 2012 Olympics. The admirably ambitious architectural plans that were submitted as part of the Games bid have been watered down, with a dazzlingly futuristic stadium replaced by one straight from the corporate catalog, and the 2012 logo was greeted with derision.

Yet the same London creatives who have transformed their city's economy from one that traded physical goods through its docks into one trading their ideas and images have bounced back with characteristic vigor, fielding a riposte that gives me faith in London's future. Shortly after the official Olympic logo was unveiled, fly posters appeared throughout Shoreditch and Clerkenwell bearing a look-alike logo in which the numerals 2, 0, 1, and 2 were replaced by the letters S, H, I, and T. Indeed.

Alice Rawsthorn, a Londoner for 28 years, is the design critic of the International Herald Tribune and writes The New York Times Magazine's Object Lesson column.