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The opening notes of the song were influenced by Ennio Morricone's score for Once Upon a Time in America, the band being huge fans of Sergio Leone's film, which they watched constantly while touring America.
Producer Steve Lillywhite's wife was singer Kirsty MacColl. She was the daughter of folk legend and broadcaster Ewan MacColl (who wrote the Pogues favourite Dirty Old Town) and had contributed backing vocals on a number of her husband's productions including songs by Talking Heads, Simple Minds and The Smiths. Steve recorded Kristy's vocals at their home, and when the band heard the new version they instantly loved it.
Earlier versions of the song were set not in New York City but on Ireland's west coast in County Clare. Several renditions were recorded before the now familiar one was settled on. Fairytale of New York was written by lead singer Shane MacGowan and Jem Finer, The Pogues' banjo player and one of the founding members of the band.
MacGowan finalized the lyrics in Malmo, Sweden while recovering from pneumonia. He said at the time, "I wasn't thinking about Fairytale (of New York), I was just wishing I could stop feeling ill! For some reason that is when I managed to nail the lyrics and the arrangement."
