Spending cutback is main fear in city
City experts tonight forecast a nervous start to trading on the stock market tomorrow following the allies’ attacks on Afghanistan.
And they warned that the risk of further terrorist action in the West could lead to a damaging downturn in consumer confidence in the UK.
Shares on the FTSE 100 Index have bounced back 20% since the terror attacks in the US on September 11 and on Friday they closed above 5,000.
But economists said the uncertainty caused by tonight’s action would see airlines and hotel groups come under fresh pressure in the City on Monday.
Oil giants BP and Shell and defensive stocks such as tobacco firms, retailers or military hardware manufacturers could rise, they said.
Justin Urquhart Stewart, of Seven Investment Management, added: ‘‘Concerns have got weaker recently as people have become numbed to what is going on.
‘‘But I think there will be a resurrection of the twitchiness and nervousness until the market can clearly see what is happening.
‘‘It’s like we have had an earthquake and were waiting for the aftershock. We now need to see how much damage that has caused.’’
Mr Urquhart Stewart said there had been little movement in the oil price in recent days and he expected this to continue.
But he added: ‘‘It only takes someone to put some Semtex on an oil pipeline and you’ve got a problem.’’
Patrick Foley, director of strategy planning and economics at Lloyds TSB, said he believed the markets could react positively to tonight’s move.
The fact the action had finally got under way meant there was more clarity in the City, he added.
‘‘I would have thought the markets would take it in their stride. It’s been well indicated by both Bush and Blair.’’
The Footsie plummeted by 287.7 points on September 11, marking the biggest one-day percentage fall since 1987.
The economic uncertainty created by the attacks then contributed to wild swings as the market gained and lost ground every few hours.
Last week saw the market close above 5,000 for first time since the attacks and analysts believed the gains signalled the start of a mild recovery.
Tonight, experts said bad news about the economy could have more of an impact on shares than news about the action in Central Asia.
Jim Wood-Smith, chief analyst at Gerrard, said he feared consumers may start to cut back spending, which would severely damage the UK economy.
Until now, the housing boom and strong high-street spending has made up for the manufacturing sector tumbling into recession.
Mr Wood-Smith said: ‘‘No-one is going to feel terribly inclined to be a promiscuous spender when there is major military action going on.
‘‘The most important response will be that of bin Laden and if there is another strike in the west.
‘‘Confidence will not be hit that much as long as it is all happening on the other side of the world.’’
Ian Fletcher, chief economist at the British Chambers of Commerce, said any sign of a drop should force the Bank of England to cut interest rates.
The BCC argued for a 0.5% cut last week and said the Bank had missed an opportunity by opting for a 0.25% cut.
Tonight Mr Fletcher said: ‘‘Once things start to slide they will slide fairly quickly.’’
