IN the immediate aftermath of the terrorist attacks in America, a second shockwave was being felt on the world's stock markets.

The Dow Jones and the FTSE plunged as investors took fright and moved their cash, while oil prices soared as the world feared they would soon be caught up in a lengthy war.

With the prospect of a looming global recession, nervy businesses issued profits warnings and began to swing the axe, announcing redundancy after redundancy.

The airlines were the first notable casualty and in the first month alone business travel fell by 40 per cent with British Airways axing 5,000 jobs.

But closer to home and 12 months on, it is the smaller businesses who are paying the price of terrorism, particularly with the increase in insurance premiums.

Steve Rankin, regional director of the Confederation of British Industry in the North-East, said: "A lot of companies have been complaining about dramatic increases in insurance premiums which have come about for several reasons including the re-evaluation of risk since September 11. Firms are in some very difficult positions because they have to take out employer liability insurance and it's hitting their bottom line quite hard."

He said the effects of the wobbly stock market are also being seen in the traditional industries in the North-East, particularly manufacturing.

"Ever since September 11, the stock market has become a very nervous place to be and I think it's one of the factors which is contributing to a very difficult upturn in activity which is impacting on the manufacturing industry," he said.

"It's making life extremely difficult for companies to claw their way out of recession and the North-East is still very dependent on manufacturing and the global economy."

Vinay Bedi, a director at stockbrokers Wise Speake in Newcastle, said the initial impact of September 11 hit the markets hard, with the air attacks against Afghanistan adding to the market's depression, followed by the recent threat of war against Iraq. In addition, there were the corporate scandals surrounding the likes of US power company Enron and WorldCom.

Mr Bedi said: "It's been a year of more downs than ups. Twelve months on from September 11 and we are almost 10 per cent below what we were before it.

"But we are taking the positive view and are hopeful that after we get past this anniversary and start to look forward, investors will be able to appreciate the values that have been created in our market and other world markets and will start to come back in."

Michael Bird, chief executive of the North-East Chamber of Commerce, was also positive and said employer's liability insurance was not a result of the terrorist attacks.

He added: "It was a great shock to start with, a terrible event, but we have all said we're not going to let that stop us doing business."