Britain's economy, already hit hard by thousands of job cuts in London's once-flourishing financial sector, could be damaged even further by the war against Iraq as tourists and business visitors stay away.

London attracted 30 million visitors last year, making tourism one of the capital's biggest moneyspinners after the huge financial services industry. Tourism accounts for about six per cent of the entire British economy.

The start of battle may have removed some of the uncertainty that had been casting gloom over financial markets, but many businesses are bracing for several months of dismal trade.

"The first three months of this year have been awful, really very dire. The industry is under pressure and the war is going to make it worse," said Miles Quest, spokesman for the British Hospitality Association.

Figures from the British Incoming Tour Operators Association show advance bookings from overseas travellers in January plunged 15 per cent on a year earlier. Travel from North America was particularly depressed.

Things got worse as television viewers across the world saw unsettling images of tanks being brought out to guard Heathrow airport after a security alert.

"It's been slow ever since September 11 but over the last two or three weeks it's taken another step lower," said George Goodhall, 56, a cab driver in London for 30 years.

"The last week and a half has been very, very slack." After the Gulf War in 1991, trips by US visitors to Britain dropped by more than 30 per cent on the year. It took a long time before trade returned to normal.

London's Mayor Ken Livingstone said this week a war in Iraq could trim a billion pounds off the capital's economy.

Britain's economy outshone most of its peers in 2002 as low interest rates helped fuel a spending boom that has kept service industries growing relatively robustly even as exporters succumb to the weakness of international markets.

But the fear is that a confidence-sapping war would rob even that growth and send manufacturing into another recession. The Bank of England cut interest rates last month to a 48-year low of 3.75 per cent to help prevent that from happening.

Corporate travel has also dropped off, adding to the pressure on hotels and restaurants, particularly at the top end of the market, raising concern that the service sector will no longer be able to compensate for a slump in manufacturing.

"People are just not travelling, that's the bottom line. Apart from the tourists not coming in we're prey to companies cutting back on expenses," said John Thomas, chairman of the London Taxi Drivers' Association.

Many companies are expected to ban all non-essential travel for their employees during the war if they already haven't done so, much as they did immediately after the September 11 attacks on the United States in 2001.

British Airways has already suspended all flights out of Israel and Kuwait and the company's head earlier forecast that passenger traffic could drop anywhere between 10 per cent and 20 per cent in the event of war.

"London's feeling the most pain but so too have places like Birmingham and Manchester. UK business has cut back on conferences, meetings and accommodation needs," said the hospitality association's Quest.

Retailers are also suffering. Last week, the British Retail Consortium said worries about war and the state of the economy were keeping people out of the shops.

Sales growth in February fell back to its lowest level in nearly four years. Stores said an anti-war rally on a key shopping day combined with the extended closure of one of London's key subway lines had hit their sales.

Many are nervous about the effect of further protests on their bottom line if they deter people from shopping.

Another rally is expected today along the same route that drew more than one million protesters last month. Trade union officials are predicting unofficial strikes.

Economists warned that consumer confidence, already at a five-year low, may take a further knock with tax rises pencilled in for April, hitting spending further.

But fears about country's war commitment have also lowered the pound, knocking it to a four-year low against the euro this month. That makes Britain a cheaper place to visit and also offers some relief to hard-pressed exporters, suggesting that maybe things are not all bad.

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