Recession puts squeeze on the capital's tourist industry

More than 26 million people - Britons and foreigners - flocked to London, and their spending injected £10.5 billion into its economy.

But the sector is not exactly immune to the recession.

Trips to the UK in the 12 months to May 2009 were down 8% on the previous year, according to the Office for National Statistics. It's the first time visitor numbers have fallen since 2001, when foot and mouth disease and the 9/11 terrorist attacks combined to keep holidaymakers away.

The latest figures for London show that last year 500,000 fewer people visited from overseas, down from 15.3 million in 2007.

Unsurprisingly, the decline was most marked when recession set in: in the last quarter, visits slumped 13%. The trend is expected to have worsened in 2009.

The news is not all bad. London's popularity has been boosted by Britons taking a staycation. Last year, annual spending by domestic visitors rose by 7% to £2.4 billion as more Britons holidayed at home. The pound's drop in value has also helped to manage the decline.

Sterling's fall against the euro has been particularly significant, with Europeans capitalising on cheap flights and other transport deals to stock up on designer fashion and make the most of relatively cheap meals and attractions.

West End retailers report that their tills are ringing with cash from foreign buyers. Harvey Nichols in Knightsbridge even launched a foreign-language advertising campaign, with taglines such as, "The English are known for having bad teeth, that is why they need beautiful shoes."

But Europeans on short breaks are unlikely to make up for falls elsewhere. Swathes of the long-haul market are staying away from London. Visits and spending from the United States, the capital's top international market with its highest spending visitors, slumped 17% last year. It was a similar story in the Japanese market, although more holidaymakers came from Australia and Saudi Arabia.

Mayor Boris Johnson and Visit London, the capital's tourist board, have tried to boost the industry with a £2.4 million advertising campaign around the world. But its communications director, Ken Kelling, admits that the recession mentality is not easy to challenge. "We expect the rest of this year and next to be tough," says Kelling. "Most in the industry do not think the worst is over, although we have traced a shift in the way that people think."

A recent Visit London survey found that the number of people considering a short break in UK is up from 40% in October to 48% last month. "There are signs that the mood is starting to become more positive, but we need to work on translating that into business," says Kelling.

The capital is still outperforming the rest of the UK.

Occupancy rates in London hotels are hovering around 80%, compared with 70% for the regions. The number of people visiting museums and galleries in London is also up.

The latest figures, for April, showed that London attractions had hosted 3.6 million people, nearly 20% more than in the same month last year, although that was partly due to the late Easter.

But one group of crucial visitors remain a notable absence. Business travel, which tends to be the highest-margin source of income to the capital's hotel and transport industries, fell by a quarter in the last three months of 2008. Numbers are expected to be even lower this year.

Eurostar last week admitted its business-class ticket sales are down 20%, and when the National Express East Coast franchise collapsed earlier this month, the rail giant blamed the downturn in business travel.

Executives are trading down from business class to standard carriages, or steering clear completely: video conferencing has experienced an upsurge in popularity as the recession has made suits fearful of taking days away from the office.

The capital's public relations machine has spent the past few years pushing London's growing convention industry, and the investment is partly paying off. In November, for example, Docklands' ExCel centre will host 15,000 delegates to Gastro 2009, the Association of Gastroenterologists' annual conference. But this sector, too, has been hit.

The British Motor Show, which last year attracted more than 472,000 people and was also lined up for the ExCel, was cancelled amid the economic gloom.

But the picture could improve very quickly. "Tourism is one of the few industries that provides almost immediate returns," says Kelling. "It's not like manufacturing, which can be difficult to get going after a downturn. We see the impact of campaigns and even good weather very fast and, looking ahead, the Olympics will ensure that more people than ever will be coming to visit London."