The number of tourists visiting the UK could fall by almost 2% this year due to terrorism fears following the London attacks, world tourism chiefs forecast.

Visitors to the Capital may decline by 588,000, down 1.9% on previously forecasted levels of 30,947,368 for the entire year, the World Tourism Council (WTC) says.

In one of the first reports to put a figure on the economic impact of last week's blasts, WTC claims the negative effects could continue into next year.

UK residents could also be put off from travelling, it says, leading to a £2.3 billion decline in spending, while business travel and tourism by British firms could drop by £523 million.

At the same time, however, WTC believes the government may spend an extra £470 million on measures to improve security and encourage visitors back to the UK.

Jean-Claude Baumgarten, WTC president, said: "It is expected that the impact of the London bombing, much like that realized by the Madrid and Bali bombings will continue into 2006, but will have completely dissipated by 2007.

"Of course this assumes that UK authorities undertake at least similarly strong measures of reassurance and encouragement to regain and rebuild visitor confidence and that no further events take place in the meantime."

Retailers are also expected to be hit by falling customer numbers, at least in the short term.

The British Retail Consortium (BRC) estimates stores have so far lost £26 million as a result of the attacks, with customer numbers on Thursday, the day of the bombs, dipping 77%.

The organisation predicts, however, that things will return to normal this week drawing on the experience of New York stores after the September 11 attacks.

"After September 11, shopper numbers returned to previous levels within two weeks, so we would hope and expect a similar scenario to occur again," the BRC said.

Anti-terrorism police today raided five houses in West Yorkshire. Metropolitan Police Commissioner Sir Ian Blair said the searches were 'directly connected' to the London atrocity, which killed at least 49 people and injured 700.