Economy: Little sign of market panic as City shrugs off bombing

The resilience shown by British consumers, employers and the financial markets in the wake of the 7 July bombings will be tested to the limit after yesterday's outrages, economists have warned.

The attacks on three Tube trains and a bus exactly a fortnight after the explosions that killed 56 people will stoke fears of a sustained bombing campaign.

"When it seemed to be a one-off event, people felt they had been lucky to avoid it," said Malcolm Barr, a UK economist for JP Morgan investment bank.

"If you get regular interruptions to the transport network from incidents of these kinds... then there has to be a change in the way we look at it."

On 7 July, police evacuated large parts of the capital and advised shoppers to stay away. But the 77 per cent slump in shopper numbers had turned into a 20 per cent rise in visits to shopping centres over the subsequent weekend.

While the FTSE index of leading shares slumped 200 points or 4 per cent within an hour of the bombs, within a week it was above the level before the explosions.

Yesterday, there was little sign of immediate panic in the City. The FTSE did fall 75 points within minutes of the news breaking, but ended the day six points up.

"The markets responded with a stiff upper lip," said Dominic Walley at the Centre for Economics and Business Research. "Whether that remains the case after today, I don't know."

The key issues for the economy in the wake of the latest bombs are the impact on the transport system, consumers' eagerness to spend, tourists' willingness to come to the UK and the rising bill for policing the capital's streets and Underground system.

The attacks come at a time when consumer spending was slowing rapidly anyway and the CEBR said the events of 7 July would wipe 0.2 percentage points - equivalent to some £2bn - off economic growth this year.

The British Retail Consortium estimates that London retailers take in around £280m worth of sales on a typical day. Yesterday, services on five Tube lines were suspended, depriving central London shops of much-needed custom.

Mr Walley said the worst impact could come from a sudden drought of high-spending tourists during the peak season. The capital draws about 30 million tourists spending £15bn each year - equivalent to an eighth of London's economy - according to the London Development Agency.

The one silver lining is that the Bank of England has room to cut interest rates to offset a downturn.