By WGSN Newsteam, 06 August 2012

Economists had hoped the "Olympic effect" would contribute to a strong rebound in GDP in Q3, following the shock 0.7% decline between April and June, but they are already scaling back their forecasts, according to a report in The Sunday Times.

Most still think the UK will pull out of its double-dip recession between July and September, but initial predictions that growth could be 1% or higher look wide of the mark now.

"Are the Olympic Games the way Britain gets out of the recession? I suspect the answer is most definitely no," Tony Travers, director of the Greater London Group at the London School of Economics, told the paper.

"All the evidence suggests that, even if there is a short-term boost to the economy, it's tiny."

Howard Archer of IHS Global Insight, a consultancy, had forecast the Olympics would boost growth by 0.3 percentage points to 0.8% in the third quarter. However, following the big fall in tourist activity, he has scaled back the Games boost to 0.1 to 0.2 points.

Economists say there is a still a huge amount of uncertainty over the Olympic effect. "We should not assume the 30% to 50% drop in activity being reported in central London is permanent — people could be spending elsewhere and tourists may come to London later," said Archer. "But if it isn't made up, the positive impact of the Olympics could be lower than forecast."

The British Hospitality Association suggests takings at some restaurants have fallen by more than 60%.

And one leading retail executive reported that the mission to advise Londoners to leave the city to those attending Olympics events had "backfired".

On the flip-side, official Olympics sponsor adidas reported brisk trade at its sportswear stores in London’s Stratford and Oxford Street.

However, all would like to see officials take action.

At a meeting last week of London councillors, various proposals emerged to encourage visitors back into the capital. One idea is for Westminster council to scrap parking charges over the last two Saturdays in August. Another is to abolish the congestion charge for the rest of the Olympics.

Despite the difficulties, some companies are philosophical, believing trade may be down this month but remaining conscious of the bigger picture.

"We've always thought this is a long-term game and hopefully London is looking good on millions of people's television screens and they'll remember it," Brian Bickell, chief executive of Shaftesbury, the property company that runs Carnaby Street and large swathes of Soho, was quoted as saying.

Visa Europe estimates the economic legacy of the Games could be more than £5bn by 2015.

Meanwhile, retailers in London’s West End shopping area are preparing an emergency advertising campaign to try to lure shoppers back during the Olympics.

New West End Company (NWEC) chief executive Richard Dickinson told The Guardian: “We are going to see what we can do to get people coming back into the centre."

NWEC has been sending out emails to consumers signed up to its marketing communications, telling would-be shoppers: “You don’t need a ticket to shop here this weekend!"

Many Londoners have been working from home during the big event while they take heed of warnings to avoid travel “hot spots", which has led to footfall crashing in the West End.

However, luxury retailers on Bond Street are doing well, according to Dickinson.

New figures from data specialist Springboard showed shopper numbers plummeted 21% in London over the opening weekend of The Games and more than 9% nationwide

In other UK retail news, the BDO High Street Sales Tracker, which charts the performance of retailers with turnover of up to £500m, showed that sales fell 2.9% in July, the sharpest fall since October 2011.

Caution among shoppers could be felt across the high street with fashion store sales down 2.6% year-on-year due in part to retailers struggling to ensure seasonal lines are in synch with unpredictable weather, while non-fashion sales fell 1.5%.

Meanwhile, homewares saw the biggest decline, with a drop of 13% on-year. A combination of slow garden furniture sales due to poor weather and reluctance among consumers to splash out on big ticket items hit the sector hard.

Don Williams, National Head of Retail and Wholesale at BDO LLP said: “With consumers increasingly value-conscious it is still a challenging climate for retailers, and the rain in early July did not help."