UK's Olympic win could leave London tourism a major loser

The official agency behind promoting tourism for London has admitted that the 2012 Olympic Games could lead to a lull in visitors to the capital next year, which may have a damaging impact on the UK's stuttering economic recovery.

London & Partners has acknowledged there "could be a problem" with people not wanting to come to London over fears, such as over-crowded transport, a lack of, or high prices for, hotel rooms, and the capital resembling a building site, from 1 January until the Olympics end on 27 August.

The comments follow a stark warning over the weekend from the chief executive of the European Tour Operators Association, who forecast a fall of up to 50 per cent in visitors to London during the Games, which would lead to a painful knock-on affect across Britain. In a TV interview, Tom Jenkins said: "I think the worse case scenario is effectively a close-down of London as a tourist destination for five to seven weeks. This will cause real damage."

He added: "The ramifications are going to affect everybody in tourism throughout the British Isles and Ireland. The fact is that London has been largely removed as a gateway for a seven-week period of high season."

Economists from Oxford Economics predict London's economy could lose a huge £375m from a number of economic "displacement" impacts, from people who cancel or delay plans to visit London due to the games.

Of this amount, the research forecasts a £160m hit from overseas visitors staying away because of expense, £124m from domestic tourists heading overseas to escape the games and £91m from Londoners fleeing the capital due to overcrowding fears.

This prospect of this level of displacement is thought to be already causing anxiety among senior officials at the Greater London Authority.

Certainly, displacement has been a factor in the build up to every previous Olympic Games, including those in Barcelona, Sydney and Athens.

A spokeswoman for London & Partners said: "We realise it [displacement] could be a problem. We are the first tourism agency to have an understanding of displacement and we want to counteract that by doing something positive."

London & Partners will launch a campaign in September to highlight a number of unnamed one-off events – in addition to the Queen's diamond jubilee weekend from 2 June 2012 – in a bid to attract visitors ahead of the games. Even accounting for displacement, the agency forecasts the games will deliver an economic benefit to the capital of £1.47bn between 2007 and 2017. "Overall, the games will benefit the city," said a London & Partners spokeswoman.

According to a recent study by the accountancy firm PwC, London's hotels will deliver growth in revenue per available room – a key measure for the hotel industry – of 4.3 per cent in 2012. But supporting the displacement impact, PwC forecasts only "slight growth" in the first quarter and a dip in the second and fourth quarters. However, this lacklustre performance over three quarters will be more than offset by 20 per cent growth in the three months covering the Olympics.

Another worrying question for London's hoteliers will not be answered until next February. This concerns the level of take up for the 40,000 hotel rooms block-booked by Locog, the London organising committee.

As part of the winning bid by London in 2005, the UK agreed to make this number of rooms, equal to about 40 per cent of the capital's 100,000-plus hotel rooms, available to Olympics officials, international federations, foreign media and others.