Freezing weather costs UK economy £1bn a day

Financial impact of the ‘beast from the east’ and storm Emma worst since Christmas 2010

Gridlocked motorways, empty restaurants and idle diggers seen across Britain last week cost the economy at least £1bn a day and could halve GDP growth in the first three months of the year.

Analysts said the impact of the “beast from the east” sweeping in from Siberia and the arrival of Storm Emma hitting the south coast was likely to be the most costly weather event since 2010, when freezing temperatures and snow brought the economy to a standstill a week before Christmas.

The extreme weather was likely to have the biggest impact on the construction industry, which experts said could lose up to £2bn over the three worst days, as sub-zero temperatures forced building workers to down tools.

Transport networks and retailers were also expected to count the cost of the freezing weather following multiple rail cancellations, a string of crashes on motorways and A roads, and warnings that workers should stay at home, keeping them away from the high street.

Economists said GDP growth, which indicates how much national income has expanded, could fall by up to 0.2% in the first quarter of the year, halving the expected 0.4% growth rate.

“It is possible that the severe weather could lead to GDP growth being reduced by 0.1 percentage points in Q1 2018 and possibly 0.2 percentage points if the severe weather persists,” said Howard Archer, chief economic adviser to the forecasting group EY ITEM Club.

He said the reduced footfall at shops, leisure facilities, theatres, cinemas and restaurants would lower economic activity, while delays to shipments of raw materials destined for manufacturing firms would also interrupt carefully constructed supply chains.

Extreme weather will have the biggest impact on the construction industry.
Extreme weather will have the biggest impact on the construction industry. Photograph: Ian Horrocks/Getty Images

The Centre for Economics and Business Research said general output would fall 20%, despite the offsetting benefit of home working and the online industry, while energy production, which accounts for 8%-10% of GDP, would be at least 20% higher.

“Netting out these effects leads us to suggest that UK output is reduced by around £1bn per day, compared to normal,” it said.

The Construction Products Association, which forecasts trends in the building industry, warned that its members would face huge losses from Wednesday to Friday in lost building work.

In 2010, freezing temperatures and snow in the week before Christmas was considered to be one of the worst on record for damage it caused to economic growth. The Office for National Statistics (ONS) calculated that the extreme weather knocked 0.5 percentage points off GDP growth.

A spokesman for the ONS said the huge fall in growth from 0.6% in the third quarter to 0.1% in the fourth quarter of 2010 was largely due to a Christmas effect, which meant cancelled shopping trips and journeys were tied to the seasonal celebrations and “lost forever”. Archer said this time, “much of the lost activity will eventually be recouped”.

But the construction industry struggles to make up for lost time and bad weather tends to delay projects permanently, says the CPA. Likewise, rail companies expect to lose millions of pounds as passengers scrap planned journeys, rather than reschedule them for another time.

A spokesman for the Rail Delivery Group, the train operators’ lobby group, said: “Invariably, the bad weather this week will have had an impact on ticket sales but the main focus of every rail worker has been to keep lines open and people moving. We’d encourage our customers to continue checking before they travel and to claim any compensation they might be due for delayed or cancelled journeys.”

Cancellations due to weather may see Network Rail footing the bill in “schedule 8 payments”, compensating train operators for infrastructure issues – although operators whose trains have broken down may find themselves presented with bills in reverse.

But refunds to passengers will be only part of the costs, with many people choosing not to travel during a week of disruption and weather warnings.

A spokesman for Glasgow airport said last week’s snowfall was double the previous record of 18cm in 1996. He did not put a figure on the cost of cancellations, but said that the revenues of the last two days were simply lost, and the airport did not expect that to be made up by its 25,000 passengers each day travelling at a later date.

National Grid’s plea for more gas supplies on Thursday saw wholesale gas prices spike at their highest level for more than two decades, but was not seen as a trigger for higher consumer bills.

The gas deficit warning saw within-day wholesale gas prices open at 200p per therm, up from around the 50p they would be normally, as the UK competed with Europe for supplies. Prices reached a high of 350p later in the day, topping a record of 300p set in December 1997, according to market watcher ICIS.

Tom Marzec-Manser, a gas analyst at ICIS, calculated that the cost of same-day gas traded yesterday was £52.6m, compared to a daily average of £7.7m in 2017.

Philip Shaw, a senior economist at the fund manager Investec, said the rise in energy production to heat 24m homes would boost the GDP figures, “but you have to ask whether people are better off from turning up their thermostat”.

He said the discomfort and delays from severe weather, which cut productivity and increased stress and anxiety, were also costs borne by households and businesses that were not calculated in the GDP figures.


Phillip Inman, Gwyn Topham and Adam Vaughan

The GuardianTramp

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