Terror attacks cost the UK economy £3bn last year, new research shows

Research reveals investment tends to decrease in the aftermath of attacks

The UK recorded the biggest economic loss from terrorism among all the countries in the EU between 2004 and 2016, according to new data, with attacks costing the country an estimated €43.7bn (£38.3bn) in GDP growth during that period.

The study, carried out by research institute RAND Europe, looked at the effect terrorism had on GDP growth across the EU, and used econometric modelling to estimate the potential impact attacks had on the economy.

Researchers found that while consumer purchasing habits remained similar in the aftermath of an attack, investments tended to go down, partly because people place less value in saving for the future and adopt a more “live for the moment” attitude.

Companies’ economic behaviour can also change following terror attacks, and lower investment and spending by business eats into economic output.

The data showed that the five terror attacks that took place in the UK in 2017 – at Westminster, Manchester, London Bridge, Finsbury Park and Parsons Green – potentially led to a loss in economic output of €3.5bn.

The research also revealed France suffered the second biggest loss over the 12 year period, at €43bn, followed by Spain, which lost €40.8bn. The cost for the EU overall between 2004 and 2016 is estimated at €180bn.

RAND also said that the extensive coverage of terrorist attacks through multiple traditional media and social media channels has “substantially increased the amount of people and companies that could be psychologically affected”, which has had an impact on economic behaviour.

Marco Hafner, a senior economist at RAND Europe who led the analysis, said: “A clear message from the report is that terrorist attacks can lead to a range of psychological effects that mean people and companies change their economic behaviours. For instance, some people may value their future less and ‘live in the moment’ more.

“These effects can impact how people consume and save, potentially leading to an increase in consumption and decrease in savings and investment rates by companies. The end result is economic losses across Europe.”

He added: “Besides the obvious physical devastation and emotional trauma, there is a negative impact on economic growth in the countries where these terrorist attacks take place. When you bear in mind the infrequent nature of terror events in Europe, the GDP losses that occur to national economies are notable.”