A WORCESTER bank manager has warned that repercussions from the terrorist attacks in the USA could have profound effects on business for city companies.

Chris Hallam, who is area manager at HSBC Bank in Broad Street, said the events would send "economic and financial shock waves reverberating around the world".

He said small and medium firms, especially, should be taking precautionary measures now, but they should not over react and "talk themselves into a recession".

"The events came at a bad time for the world economy," said Mr Hallam.

"Growth in the USA had already come to a standstill in response to the shake-out in the IT and telecoms sectors and consumer sentiment had also just started to slide."

He said with the downturn spreading rapidly there had been a "synchronised slowdown" in all major economies, with Japan especially hard hit.

"It's now highly likely the USA will suffer a brief, and possibly sharp, recession. Similar effects, but probably on a smaller scale, could be felt in other major economies.

"They will all be affected to some extent if domestic demand in the USA weakens even more."

He said the world's leading banks had acted swiftly following the catastrophe to ensure financial markets had adequate liquidity to counter the increased risk of recession but it was not sure what the outcome of this would be.

"It's by no means clear that cutting interest rates will have the usual effect of stimulating demand and spending," said Mr Hallam.

He said activity had been buoyed up by strong consumer demand and accelerating expenditure by the public sector.

However, falling exports, due to weakening global demand, and a manufacturing industry already in a deep recession, meant the UK's economy had grown by just 0.4 per cent in the second quarter.

"Many companies were already laying off staff to curb costs in the face of falling profitability.

"The tragedy in America and the UK's involvement in the ensuing military action could dent growth prospects still further in the short term."

He said companies could not afford to ignore the downturn but could take positive action to keep the business on the right course.

"By all means, respond to a possible downturn but, equally, be careful not to talk yourself into one," he said.

"If you think there is going to be a protracted slowdown and act as though there is one, it becomes a self-fulfilling prophecy.

"This may not only hurt your business now but could mean you're unable to respond swiftly when the up-turn comes."