John had been the first to refer to Penny Lane in song, having tried to incorporate it into In My Life, but it was Paul who eventually picked it up and made it work. He created a Liverpool street scene that could have been taken from a children's picture book, with a pretty nurse, a jolly barber, an eccentric banker, a patriotic fireman and some friendly passers by. "It's part fact," he admitted. "It's part nostalgia."

There was a barber's shop in Penny Lane, run by a Mr Bioletti who claimed to have cut hair for John, Paul and George as children; there were two banks, a fire station in Allerton Road and, in the middle of the roundabout, a shelter. The banker without a mac and fireman with a portrait of the Queen in his pocket were Paul's embellishments. "I wrote that the barber had photographs of every head he'd had the pleasure of knowing," said Paul. "Actually he just had photos of different hairstyles. But all the people who come and go do stop and say hello."

Finger pie was a Liverpudlian sexual reference included in the song to amuse the locals. "It was just a nice little joke for the Liverpool lads who like a bit of smut," said Paul. "For months afterwards, girls serving in local chip shops had to put up with requests for 'fish and finger pie'."

The Liverpool poet Roger McGough, who was in the Sixties group Scaffold with Paul's brother Mike, believes that Penny Lane and Strawberry Fields were significant because they marked the first time that places other than Memphis, and roads other than Route 66 or Highway 61, had been celebrated in rock. "The Beatles were starting to write songs about home," McGough says. "They began to draw on things like the rhymes we used to sing in the streets and old songs our parents remembered from the days of the music halls. Liverpool didn't have a mythology until they created one."

Today, Penny Lane has become an important landmark on any Beatles' tour of Liverpool and yet the success of the song has meant that many of its features have changed. All the original street signs were stolen and so those that remain are screwed down tightly and out of reach. The barber's shop has become a unisex salon with a picture of the Beatles displayed in the window. The shelter on the roundabout has been renovated and reopened as Sgt Pepper's Bistro. The Penny Lane Wine Bar has the song's lyrics painted above its windows.

Both Strawberry Fields Forever and Penny Lane were intended for the new album, but Capitol Records in America was pushing for a single, and it was released as a double A side. In America it took the top spot but in Britain it was kept at No 2 by Engelbert Humperdinck's hit, Please Release Me.