'This is no short-term blip'

Business confidence in London has plunged new depths, as the full economic and financial impact of the terrorist attacks on America makes itself felt. The mood in the capital's boardroom is now even gloomier than it was in late September, in the immediate aftermath of the destruction of New York's World Trade Center.

Within the past fortnight, almost 300 executives across London have been questioned on behalf of the Evening Standard and the London Chamber of Commerce and Industry. These are the key findings:

More than one in three businesses say their turnover is still down on pre-September levels.

The same proportion expect sales to stay depressed over the next few months. Only one in five expects turnover to climb above pre-September levels.

Central London has been hit harder than the suburbs.

Retailers have suffered hardest of all - although many manufacturers who initially thought they had escaped unscathed have had a tough October.

One in 10 executives has cancelled or postponed a business trip to America because of the terror crisis.

There has been a sharp jump in the number of businesses expecting to lay off staff and cut marketing budgets over the next 12 months.

Only one in four executives is now optimistic about London's prospects overall, compared with two in three as recently as June.

Our latest Business Monitor dashes hopes that the post-11 September slump in confidence would be a shortlived blip. A month ago, in the immediate aftermath of the terrorist attacks, 29 per cent were optimistic about London's economic prospects "in the short to medium term". This was a sharp drop from 59 per cent in late August. This month, far from recovering, the figure has slipped further, to 25 per cent. The proportion optimistic about their own company has also fallen further - to 41 per cent, from 47 per cent in late September and 72 per cent back in August.

Retailers are especially pessimistic. As many as 72 per cent say their sales fell during the days after the terrorist attack. We then asked what has happened to their sales since the beginning of October. Fifty-seven per cent of retailers say their sales are still below pre-September levels. And 54 per cent fear that their sales will stay low "over the next few months".

Other business sectors have not been hit as badly, but in every case pessimists significantly outnumber optimists. Manufacturers seem to have suffered the least. although there are signs that their relative optimism may be fragile. Only 24 per cent said their turnover fell immediately after 11 September; however, asked about their October sales, 33 per cent report that it is below pre-September levels. This is the one business sector where even more companies had a bad October than a bad September.

It is also clear that central London has been hit especially hard. Not only are City and West End companies more likely than businesses in the suburbs to report a slump in sales; they are also more pessimistic about the future. Almost half of central London companies expect turnover to remain at below pre-September levels for some time to come; but only one in four suburban businesses shares the same fear.

We also asked how the aftermath of the terrorist attacks had affected executives directly. Thirty-six per cent say they had experienced delays at airports because of security checks. Ten per cent have cancelled or postponed business flights to the United States - a figure which, across London's large business community, reflects a huge loss of revenue to transatlantic airlines. A smaller but still significant number, six per cent, say they have postponed or cancelled flights to continental Europe since 11 September.

Seventeen per cent have postponed decisions about future holiday plans. This helps to explain why tour operators are having such a grim autumn. They must be hoping that these postponements do not turn into cancellations, and that the expected levels of custom will eventually materialise.

Only five per cent say they have cut back on social visits to London restaurants, theatres etc. It is more likely that these have been hit more by the sharp reduction in the number of overseas visitors to London than by the changed behaviour of Londoners themselves.

However, this may change for the worse if London's economy continues to suffer. Until this summer, Business Monitor repeatedly found that many more companies expected to expand rather than contract their workforce. Our figures were consistently confirmed by official figures a few weeks later, showing that more and more Londoners were indeed in work.

The outlook has now changed dramatically. In July, only seven per cent expected to shed workers "over the next months". By late August, even before the terrorist attacks, that figure had jumped to 17 per cent. In late September it was up to 19 per cent. Now it has surged to 27 per cent. For the first time since we launched London Monitor more than two years ago, more London companies are now expecting their workforce to contract rather than grow. The capital's economy faces a tough winter.

London Monitor is conducted by the market research agency IDA on behalf of the London Chamber of Commerce and Industry in conjunction with the Evening Standard. The raw data has been weighted to reflect the number of workers employed by each company. More information may be obtained from Piers Merchant at the LCCI: 020 7203 1898