Tourism and spending may be hit hard by yesterday's events, writes Marc Coleman Economics Editor

As well as the appalling human consequences, the events of 9/11 had profound economic consequences from which many western economies have only recently recovered. The bombings of "seven seven" were timed for maximum economic and political impact, coinciding with the G8 summit.

But any discernible impact will be more modest and more confined to the UK economy.

How significant will they be, what sectors will be affected and could they spill into the Irish economy?

The economic impact of such an event comes down to questions of timing and context. The size of 9/11 (destroying a nerve centre of the world's financial system) combined with its timing (during a serious downturn in technology stocks) to produce an economic downturn from which much of Europe is just recovering.

Share prices plummeted while investment and consumer sentiment fell dramatically.

The seriousness of the situation was underlined by the fact that both the US Federal Reserve Bank and the European Central Bank (ECB) reacted to 9/11 with emergency cuts in interest rates.

This time, the US Fed, the ECB and Bank of England discussed the financial implications of the bombings, but concluded that there was no need for any co-ordinated intervention.

Although financial markets remain secure overall, equity markets have reacted. The London FTSE 100 index closed 1.4 per cent lower on the day.

French and German stock markets were also down by comparable amounts.

Yesterday also witnessed a rise in the price of Bund and short sterling futures.

The price of such financial products is inversely related to market expectations about future interest rates.

Yesterday's reactions are still modest compared to the impact of 9/11 and of the first day of the last Gulf war. In the absence of any further attacks, equity markets are likely to shrug off yesterday's events.

Some discernable economic effects may nonetheless follow.

The decline in the FTSE was disproportionately affected by significant falls in airline and hotel stocks - including Jury's Doyle - as investors fear a future fall-off in London tourism. As a neutral country Ireland is less likely to be affected by this.

Increases in insurance premiums may be a further negative effect of the bombings as share prices in insurance companies fall on fears of terrorist-related claims and lower profits.

Perhaps the most significant impact will be on consumer confidence in the UK and even beyond: the bombers struck at critical transport hubs in London and have done so at a time when the UK economy is more than usually vulnerable to a fragile consumer confidence.

The UK economy is akin to a four-engine aircraft in which two engines - investment and exports - are not fully operational.

The other two engines - government spending and consumer demand - have been driving growth forward but are starting to splutter as government tax revenues disappoint expectations and consumer spending is hit by growing concerns about house prices.

As well as undermining confidence in the safety of London's tube and high street the bombings may raise broader concerns about the ability of terrorists to disrupt oil supplies.

In the run up to the bombings, both the Confederation of British Industry (CBI) and the National Institute for Economic and Social Research Institute have issued warnings about the UK's deteriorating growth prospects.

On Wednesday CBI director general Digby Jones issued a strong call for reductions in the Bank of England's base rate.

In the wake of the bombings, those calls remain unheeded in the short-term. Any further negative impact on consumer confidence in the coming months could tip the balance in favour of a rate cut.

In the longer-term, the potential for terrorism to impact on the global economy has been highlighted by yesterday's events.