Business View: Watch out, UK plc, if London pulls down the shutters

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Back to work Monday was just that. London dusted itself down, put on its defiant face and went back to work. The business capital of Europe, the second most important financial centre in the world, the engine of the UK economy - it was vital that London put the bombings of 7 July behind it. And for the most part it did.

The financial markets quickly resumed their vibrancy and composure. Deals were being done and volumes were respectable for a warm July week, which saw the posh schools starting to break up for their summer holidays. Unlike the 11 September atrocity, this terrorist attack did not close any financial businesses. Everyone was there to do deals with everyone else.

The other crucial factor for business was that the attacks did not lead to large areas of the capital being cordoned off for rescue work and police investigations. The events of 11 September and the Istanbul and Ankara attacks on branches of HSBC hit small businesses in the vicinity particularly hard. In each case, the aftermath of the blast, with streets closed to traffic, had a massive impact on the businesses that surrounded the buildings attacked by the terrorists. In New York, half the firms that were shut down because of the 11 September attack never reopened.

In London, the outward effects of the three Tube bombs were minor - indeed, traffic was passing through Aldgate by Monday. The area cordoned off around the No 30 bus in Tavistock Square was small, and only a handful of businesses were unable to reopen quickly.

The big worry for London's economy was that the bombs would harm tourism and shopping. With the exception of the US air force, it appears that few people have actually been deterred from visiting London. It is too early to have anything but anecdotal evidence, but the London Chamber of Commerce and Industry (LCCI) says its members have seen no drop in bookings post-7 July. It is a sad truth that travellers have come to realise that every major city in the developed world is a likely terrorist target. They feel that our capital is no more or less safe than Paris, Rome or, indeed, Madrid, where tourist numbers were back up to pre-attack levels only six months after last year's commuter train bombings.

Retailing, though, might not be such a happy story. According to retail traffic specialists SPSL, the numbers of shoppers in central London have stabilised at about 14 per cent down on what would be expected by the end of last week. Some people may have been put off by the bombs, others by the disruption to the Tube, and others by the £3 hike of the central London congestion charge from £5 to £8.

You'd expect all these factors to becomes less important over time - but how long will that take? Retail accounts for a fifth of the London economy, and any significant shift from Oxford Street to Brent Cross or Bluewater will hit not only the retail companies but also the landowners - with the Crown Estate, owner of Regent Street, one of those at the sharp end.

And then there is the issue of confidence. A survey for the LCCI, published tomorrow, will show a sharp drop in confidence among London businesses even before the bombings. Regardless of the Blitz spirit, this situation will hardly be improved by terrorist attacks in the centre of the city.

As a standalone country, London has a GDP equivalent to that of the Netherlands. There is an argument that any business lost by the capital would merely be picked up by some other part of the UK, like fat being displaced by a corset. But London's dominant influence on market sentiment, and through that government policy, is disproportionate even to its economic dominance. A fretful London is extremely bad news for the financial health of the UK. While 7 July was a human tragedy, we should not make it an economic one.