Will the riots affect the UK economy?

When the situation in England is going back to normal, there still is concern about the consequences that the riots will have in the fragile British economy. It is believed that one in 10 retail and leisure firms had been affected by the disturbances. This week we have seen businesses and restaurants closing earlier than usual, events such as football matches have been cancelled and if the situation remains insecure, many tourists could be deterred from coming to Britain which would affect an industry that accounts for £96 billion of GDP (8.6% of the economy).

Four days of riots have already cost businesses and insurers hundreds of millions of pounds and the images of London burning beamed around the world can affect Britains reputation and tourist trade. "People read that there are riots in London, they think people are rioting on Tower Bridge or in front of Parliament," said Tom Rees, senior travel and tourism analyst at market research firm Mintel.Patricia Yates of Visit Britain said tourism businesses had seen "concern from some consumers" but not yet cancelations. However, not everybody is pessimistic. Tom Jenkins, chief executive of the European Tour Operators Association, said the images of riots looked bad, but the disturbances would have little long-term impact on Britain's resilient tourism industry.

There are more concerns about the effects on the long-term effect on small businesses. The UK may face a short-term bill of up to £100 million following the riots, but the long term economic implications are less clear.

Economists said it was too early to say whether the riots would affect the UK's growth rate. According to Andrew Goodwin, economist at the Ernst & Young Item Club the biggest impact is going to be at the local level. For Colin Stanbridge, Chief Executive of the London Chamber of Commerce and Industry (LCCI), the timing could not have been worse. "…with the capital's firms already bearing the heavy cost of the continuing economic turmoil, at the peak of the tourist season and with only a year to go until the London 2012 Games, this really isn't the image we want to present to the world."

Many of the worst affected areas have high levels of unemployment and the recent events will make things harder because insurance costs will probably increase and companies will be reluctant to open new branches in the most affected areas. The Association of British Insurers says insurance companies are expecting losses of "well over" 100 million pounds from the mayhem which is likely to hit small businesses the hardest.