The Economy: Losses suffered by retailers and tourism will be only short lived, analysts predict

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Shares have already regained their losses, tourism will be back to normal within five months and the UK economy will hardly notice the effect. That is the sanguine analysis of the financial effects of Thursday's terrorist bombings.

Only shops - and then merely those in central London - will suffer any long-term fallout. Retail experts say stay-away shoppers - with numbers down 77 per cent on Thursday and 50 per cent on Friday - have already cost London stores, including Harrods and Selfridges, over £220m, and the total effect could run into billions.

The FTSE 100 index of leading companies fell 200 points directly after the bombings but recovered to close only 71.3 points down on Friday. A 73.9 per cent rise later that day put it in positive territory.

Jonathan Loynes, chief UK economist at Capital Economics, said the terrorist attacks would not have any lasting financial effect on the British economy. Having studied other terrorist attacks - on Madrid, Istanbul and New York - as well as other one-off events, such as the foot-and-mouth crisis, he said, "The economic impacts are small because of powerful substitution effects. People put off a shopping trip to Oxford Street, but go another time or go to Bluewater."

He said the attacks made it "even more certain" that the Bank of England would cut interest rates from 4.75 per cent to 4.5 per cent next month and predicted that rates would be down to 4 per cent by the end of this year.

Stuart Thomson, chief economist at brokers Sutherlands, had a similar view. "The terrible events in London are unlikely to have a major or lasting impact on the financial markets or economy, but at the margin there will be a temporary impact on consumer spending and small, but longer-term, impact on tourism."

Tourism experts predicted that the effect on the industry would be short lived. Alex Kyriakidis, head of tourism, hospitality and leisure at accountants Deloitte, said he expected London's tourism numbers to be back to pre-attack levels within five months.

He said European visitors - 70 per cent of the 13.5 million people who come to London each year - took a pragmatic view of attacks. In Madrid, numbers recovered within six months of last year's bombing and are up 3.4 per cent on where they were before the attacks.

US tourists, who make up 17 per cent of visitors but a quarter of spending, may be put off. But this will be more than made up by growth of people travelling from China. "Asian tourists love buying high-end branded goods, so this is great news for retailers," Mr Kyriakidis said.

Tim Denison, director of knowledge management at SPSL, which measures the number of shoppers coming through the doors, said: "Thursday was an exceptional day but even on Friday or Saturday there's likely to have been a 50 per cent drop in retail traffic. It will be a significant, short, sharp drop and then things will improve, but not necessarily to the levels that we have seen for some time. It's a worry."

July is a crucial time for retailers, as most of them launch their summer sales this month. Dr Denison said it was the second most important month of the year after December. "We're talking potentially billions," he said.