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July 23, 2005 3:00 am
London's economy faces a rocky ride if the current series of terrorist-related incidents continues, economic commentators said yesterday as business bodies called for security improvements to public transport and workplaces.
The capital has entered uncharted territory with three serious security alerts in just over a fortnight. The impact so far is thought to have been minor, given the scale and vibrancy of the London economy. Losses from the July 7 attacks alone are estimated to have cost the capital £150m in lost tourism income. But that compares with economic production in London worth more than £115bn a year out of a UK total of about £1,000bn, according to government statistics.
Thursday's bombing attempt confounded speculation that western capitals were each suffering a single serious attack. Henk Potts, an equity market strategist at Barclays Stockbrokers, said: "New York and Madrid, which were the subjects of worse attacks than London, did not suffer a dramatic economic effect. But there is now a question whether London will see a series of terrorist incidents."
Neville Hill, an economist at CSFB, said: "This seems to be a sustained campaign, which raises the risks that there will be a more sustained response from consumers. The consumer downturn that we have had since last year is likely to become more pronounced."
Alan Castle, UK economist at Lehman Brothers, said: "The fact that there were two large-scale bombing attempts means that you have to ask whether this will have a bigger impact on the economy."
The potential damage would be multi-faceted, economists said, ranging from lower retail sales and dwindling tourism revenues to a reduced readiness by international businesses to set up branches in the capital.
Tourism bodies led by Visit Britain, which markets UK holidays abroad, said the July 7 bombing was likely to reduce foreign tourists' spending by about £300m in 2005, with £150m of the decline in London. That represented a fall of just 2 per cent against expectations.
Visit Britain said the failed bomb attacks on Thursday had further "serious implications for tourism in London", although British Airways said there was no obvious increase in cancellations of trips to the UK.
Similarly, there were few jitters yesterday on the UK stock market, which has the job of converting all known information about business prospects into the reassuringly simple confidence measure of the FTSE 100. The index fell just 34.9 points on news that police had shot a terrorism suspect and closed up 20 points higher at 5241.8. This muted reaction compared with falls of 207.5 points on July 7 and 75.8 points on July 21, when the index closed down 73.1 points and up 6.4 points respectively.
Michael Snyder, chairman of the policy committee of the Corporation of London, said damage to business would "not so much be through fear but through disruption". He pointed out that foreign banks ploughed billions into building up a City presence through the 1980s and 1990s, when the threat from Irish republican terrorists remained strong.
The drastic experience of British and German cities during the second world war was that even heavy bombing did little to dent morale or damage commerce. Mr Snyder said: "Terrorists will not win. That is not because [ordinary] people are desperately brave. They just have to get on with life."
The London Chamber of Commerce and the Asian Business Association called jointly for transport authorities and business to step up security measures.
Ken Livingstone, the mayor of London, on Thursday had rejected calls for Tube passengers to be scanned for explosives, saying it would be impossible to deal with the 3m people travelling every day.
But yesterday the LCC and ABA advocated the introduction of random scanning. Peter Bishop, deputy chief executive of the LCC, called for the revamping of the "ring of steel", a physical and logistical bulwark against terrorist attacks set up around the City in the early 1990s.
The Chamber and the ABA said high-risk organisations should run security checks on visitors outside their buildings, instead of in reception areas. They said: "This has been effective in thwarting suicide attacks in other parts of the world."
The bodies called on more businesses to join a security alert system operated by the City of London police in the City, Westminster and Docklands. In return for a fee nominated directors or employees receive pager, text or e-mail messages about terrorist threats or disruption to transport.
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