Financial trade publications were quick to point out London’s vulnerability. In June 1993, Bank Systems & Technology wrote of the Bishopsgate bomb: “. . . the strategic damage the IRA seems to have wanted to inflict—and succeeded—is seriously sapping the world financial community’s confidence in the Brits’ ability to keep the financial district safe for business. The fact that the blast occurred on the first anniversary of another such outrage is being interpreted as a message to foreign banks that the IRA can come and go in England with impunity.”

The global and dynamic nature of the financial markets heightened these concerns. “The businesses here are not tied to the United Kingdom because they do a lot of business in this country. They are here because it’s a good place to do business internationally, so they could move,” says Greg Williams, spokesman for the Corporation of London, the local government body that administers the City. “That makes us especially vigilant in making life comfortable and secure for them here.”

Measures to ensure that security increased the cost of doing business in the City. “After the Baltic Exchange bombing there was a change in approach to procurement design for buildings,” says John Haddon, London-based director of the security consultancy Arup. “We saw elements of structural and facade resilience against bomb blasts being introduced, especially by those banks that had been affected by the bombs of the early 1990s. We also found that clients were taking disaster recovery centers more seriously, and were putting back-up data centers some distance away from their headquarters.”

Uncertainty in Check
While the IRA no doubt hoped that the threat—and deadly execution—of its prolonged bombing campaign would have a serious effect on the UK’s economy through its negative effect on financial markets and on inward investment, the evidence indicates otherwise.

Direct investment inflows (see Graph 1, opposite page) to the United Kingdom, for example, maintained their general upward trend, apart from one dip that occurred, ironically, the year that the IRA declared its 18-month ceasefire. “During the terrorist years, Britain was probably the most popular destination in Europe for foreign direct investment,” notes Nicholas Crafts, an economic historian at the London School of Economics. Foreign investors determined that the country’s strong business fundamentals offset the risk premium caused by the terror campaign. (Click image to enlarge)

Similarly, UK stock markets from the beginning of 1992 until the end of 1996 rose overall during the period in which the IRA targeted Britain’s economy. Graph 2 (above) shows the level of the FTSE 100, Britain’s most-often quoted equity index, over the period in question.

Over the short term, again there is little evidence that the terror campaign frightened investors out of the United Kingdom. Graph 3, right, shows the FTSE 100 in the days immediately before and after the Baltic Exchange bomb. The market rallied and continued to do so in the days following the explosion. Likewise, the market was experiencing a short-term downward trend immediately before the Bishopsgate bomb. After the bombing, the market continued its downward trend for a few days before beginning a recovery.