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The City

Published:  18 January, 2007

To borrow from Charles Dickens, it was the best of times, the worst of times. Within 20 hours of London being awarded the 2012 Olympic Games, the capital had been traumatised by the bombing outrages on its public transport system. There could have been no starker illustration of the influence extraneous events can have on the share prices of hoteliers, pub groups and restaurateurs.

When it was announced in Singapore that London had pipped Paris on the line, leisure shares took on an Olympics premium. Companies to benefit included the big hotel chains, including Hilton, while Scottish & Newcastle, Britain's biggest brewer, was seen as a natural winner from an extra influx of sports-mad tourists. In London, Fuller, Smith & Turner patted itself on the back for having the London Pride beer brand while rival Young & Co rushed out to register a trade mark for 2012 Ale'.

Then the bombs went off. Shares in British Airways fell 8%, Hilton, the hotelier, lost 7% and Scottish & Newcastle gave up the previous day's gains. There were widespread fears that tourism to London would suffer. But, amazingly, the London market rapidly recovered its poise and ended the week at a three-year high despite the terrorist outrages.

What this shows is that news both good and bad will trigger rapid market reactions, but fundamentals soon restore perspective. Global stock markets would have slumped in late 2001 even without 9/11; the technology bubble was bursting anyway. Equities continued to rise after the outrages in Bali, Istanbul and Madrid because the impact of those attacks on business as a whole was minimal when the markets were rising.

London's tourist economy has been recovering from the ravages of 9/11 for a couple of years. In 2003, it was the top destination among cities for overseas investors, attracting 11.7 million visitors. In that year, trips to London rose by 14.5%, and this year a further rise of 3.5% was expected. That will be trimmed but, if the experience of Madrid can be drawn upon, not by much. The Spanish capital was firmly back on the tourist map within weeks of March 2004.

On the other side of the coin, perhaps there was too much immediate euphoria about London winning the 2012 Olympic Games. On current estimates, the extra expenditure they will generate for the capital over and above what visitors would have spent anyway is about 9 billion - spread over seven years. Compare that with London's annual gross domestic product of 1,200 billion and the true impact to the economy becomes evident. No matter how welcome, overall it is marginal.

Some businesses will struggle in the wake of the London bombings, but the majority will experience little long-term effect. There will be a few winners from the Olympics - happily for drinks producers, most will be in the hospitality sector.