Markets absorb the shock

WHEN terror attacks are claiming lives, the economic and market impact is a secondary consideration. But it was reassuring that the markets regained their nerve after an initial slump following the Istanbul atrocities.

Shares recovered as the day went on. The Turkish lira understandably slumped and the dollar weakened, but not dramatically. Sterling rose to $1.7040 and the euro to $1.1920. If the attacks intensify, the dollar may suffer more. In the run-up to the Iraq war earlier this year, it fell sharply, with the euro rising from $1.03 to $1.19.

The US currency looks vulnerable anyway due to the massive US trade and budget deficits. Royal Bank of Scotland economist Ross Walker expects further falls, taking the euro to $1.25 and sterling to $1.78 by end-2004.

On the home front, Bank of England governor Mervyn King is seeking to calm nerves. As mortgage borrowing reaches a new peak, he is concerned about the speed at which debt is mounting, urging households to think carefully about how much they can handle.

Lower income families in particular are making heavy use of their credit cards - a very expensive form of debt, as Barclays boss Matt Barrett says.

But King thinks the situation not as 'fragile' as some fear. The message is that interest rates have further to go, but sudden sharp rises do not seem likely.

Walker expects 4.75% a year ahead, but thinks that will be the peak. Retail sales growth of 0.6% in the month of October, taking the annual rise up to 3.7%, suggests that consumers are still in a spending mood.

The annual growth rate has been remarkably steady since July. This was surprising after gloomy talk from store groups in recent weeks.

The mild weather is slowing purchases of winter clothing, and surveys show consumers are less confident as interest rates turn upward. It seems likely that the November figures will be less resilient.

Strong consumer spending means Gordon Brown's VAT takings are running 6% ahead of last year. This is fortunate because income tax is flat and corporation tax takings slumped 12% - a poor result in the peak month for company tax, when the public finances are normally in hefty surplus.

The latest surplus is just £317m, the smallest October figure for nine years. The deficit for the first seven months of the tax year is £21.1bn, almost double last year's £10.7bn.

Brown's target of £27bn for the full year looks ever less realistic. City forecasts are edging up to £35bn and above. His message to the CBI this week is that he will let debt take the strain. He will probably get away with it, but the deficit is becoming alarming.

Last lap

IT seems an age ago that lastminute.com floated at the peak of the technology boom, and Martha Lane Fox was hailed as a heroine. Now she is quitting the group at the tender age of 30.

Lastminute shares were sold at 380p in the March 2000 float, and soared briefly to 487p. Last night they fell 51 1/2p to 248 1/2p. At this price the float investors are still down 35p in the pound.

Of course, that is pretty good compared to the '99% club' of internet companies whose share falls have all but wiped investors out.

Travel has proved one of the few businesses capable of making money online, along with music, betting and 'adult' material.

Lastminute is in profit - just about. The £224,000 surplus for the year is before £47.7m of goodwill and other write-offs.

Brokers expect stronger profits of £28m pre-tax next year. That makes the group's market value of £740m look steep, but it should be able to keep costs down as revenues climb.

Out of the dotcom carnage, that is quite an achievement -enough to wish Lane Fox well in her new life. Sadly, though the age is right, she has left it just too late to become BSkyB's next boss.