London is currently the seventh most expensive city in the world in terms of costs of living, according to a new survey by the Economist Intelligence Unit (EIU).

The results of the bi-annual Worldwide Cost of Living survey saw Europe dominating the top of the list.  Not surprisingly the more developed western European cities make up the bulk of the most expensive cities in the region (and the world).   Only one city (Moscow, 29th) from eastern and central Europe features in the 30 most expensive destinations, compared with the presence of 20 cities in western Europe.

After 14 years at the top Tokyo has been overtaken by Oslo as the world's costliest city.

The top of the ranking highlights a much wider increase in the relative cost of living across Europe, driven by the long–term underperformance of the dollar.  Reykjavik saw the largest proportional rise in the cost of living over the last 12 months, gaining 19 percentage points on New York and moving above Osaka into third place.  Eight of the ten most expensive cities in the survey are now based in Europe, although only Paris (France, 4th) hails from the euro zone.

Cities from the transition economies are seeing advances in the relative cost of living, some buoyed by entry into the EU or accession talks. Belgrade (Serbia & Montenegro, 107th), Bucharest (Romania, 95th), Kiev (Ukraine, 82nd), Warsaw (Poland, 63rd), Prague (Czech Republic, 58th) and Istanbul (Turkey, 48th) all saw a relative jump of more than 5% in the cost of living.

Elsewhere around the world an improving economic outlook has pushed Brazilian cities up the ranking whilst Asian cities make up many of the cheapest destinations.

A strong regional performance in 2004 has filtered through to consumption and inflation levels in many countries of Latin America, causing a relative jump in the cost of living among many cities.  Only four cities saw a decline in the relative cost of living in Latin America. Two of these cities, Quito (Ecuador, 100th) and Panama City (Panama, 95th), have dollarised economies and therefore have not seen the cost of living rise on the back of a weakening dollar. Asuncion (Paraguay, 124th) is the cheapest city in the region, with a cost of living index of just 45% of New York's.

The sharpest rise in the overall rankings came from two Brazilian cities Rio de Janeiro and Sao Paulo. Each city jumped 22 places to joint 87th on the back of rising consumer prices and a 25% increase in the value of the real.

Despite spending so long at the top, the displacement of Tokyo comes as little surprise. A gradually weakening yen has been compounded by years of low inflation and deflation in the Japanese economy.  Seoul (South Korea, 13th), meanwhile, overtook Hong Kong (14th) as the most expensive city in the region after Tokyo and Osaka.

Despite rampant economic growth, and the decoupling of the yuan to the US dollar, Chinese cities have experienced a relative fall in the ranking as increased investment opens up pricing competition and lowers tariffs on branded goods in larger urban centres.

High levels of income disparity mean that, although Tokyo and Osaka remain the most expensive cities in the world, many cities in Asia offer much better value for money. Five of the seven lowest–priced cities surveyed are based in Asia. The cheapest of these is Manila (Philippines, 127th), also the second cheapest destination surveyed.

Cities in the Middle East saw a relative decline in living costs due to extremely low inflation, price controls (especially on fuel) and the pegging of so many currencies to the US dollar. In the Middle East only Dubai (UAE, 71st) and Cairo (Egypt, 113th) climbed the cost of living ranking.

In North America, Canadian cities are now more expensive than all but the largest cities surveyed in the United States. Of 16 US cities featured in the survey only New York (27th), Chicago (35th), Los Angeles (35th) and San Francisco (40th) are pricier than Montreal and Vancouver (joint 43rd).

With the cost of living set at around a third of that of New York, Tehran remains the cheapest destination in the ranking, a long way down from its position as the world's most expensive destination 14 years ago.

The bi–annual 'Worldwide Cost of Living' survey compares the cost of a representative basket of goods and services in dollar terms from over 130 cities worldwide to provide guidance for the calculation of executive allowances. The data quoted here used New York as a base index of 100 for comparisons.

The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist.