Bill Jamieson: Impact of the last big freeze was chilling

Empty supermarket shelves in Glasgow bear witness to the chaos. Picture: John Devlin
Empty supermarket shelves in Glasgow bear witness to the chaos. Picture: John Devlin
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When it comes to measuring the impact of The Beast from the East on our economy, the words “seasonally adjusted” barely begin to cover it. Cold snaps we can take and a spell of freezing temperatures we can absorb.

But last week’s carnage, extending across the whole of the UK, with severe disruption over Scotland’s central belt, the north of England, the Midlands and the southwest must rank as one of the worst in recent memory.

Schools and offices closed; air and rail services were cancelled; motorway lorries jackknifed and normally busy dual carriages were almost deserted; deliveries were disrupted and in the high streets of hundreds of towns, already stricken retailers gazed out on deserted aisles. About the only business activity where temperatures rose above freezing was in the insurance company claims departments.

But what permanent damage is likely to have been done? Over the weekend snow ploughs will have cleared blocked roads and emergency vehicles will have hauled the motorway juggernauts back to driving mode. Power will have been restored to trains. Most schools and offices will be back to normal by tomorrow. And as for the high streets, shoppers will soon make good the days of retail withdrawal. Need we worry that much?

Looking to recent history, what can we learn? December 2010 was the coldest for more than a century, according to the Met Office, with snowfalls occurring on several days in almost all areas of the country and temperatures plunging as low as minus 21.3C in the Scottish Highlands.

The severe cold spell in the approach to Christmas was estimated, according to press reports at the time, to cost the economy up to £1.2 billion a day with a total cost of £13bn. Retailers were particularly badly hit by lost sales with footfall down nearly 20 per cent compared with the same period the previous year and as much as 30 per cent in the West Midlands and South East.

The impact on the economy was later investigated by the Office for National Statistics (ONS).

Its findings suggested that the cold snap caused a temporary drop in overall economic growth (GDP), along with dips in the growth of output for retail sales and the UK’s service industries.

The distribution, hotel and restaurant sector showed evidence of an impact, as “customers postponed discretionary trips because of the bad weather”.

Overseas travel and tourism, according to the ONS, was also hit, with the cold weather having a “detrimental effect” on the number of UK residents travelling abroad. But there was little apparent effect on the average number of weekly hours worked while higher activity was recorded in “computer programming, consultancy and related activities”.

More recently, the Centre for Economics and Business Research suggested in a survey in 2015 that a drop of one degree in the minimum average temperature could cost the UK economy £2.5 billion due to lower output among businesses and lost productivity caused by transport delays and people not making it to work. It calculated that periods of extreme cold weather were believed to have lowered economic growth in the UK between 2005 and 2015 by a total of 0.6 percentage points. By way of comparison, the ONS calculates the UK economy grew by 1.7 per cent between 2016 and 2017.

The impact of severe weather on Scotland’s economy could be much more severe this time around. Growth in the third quarter of 2017 was just 0.2 per cent – half the UK rate over the same period. In his latest State of the Economy Report, chief economist Gary Gillespie cited a range of independent forecasts for 2018 of between 0.7 per cent and 1.4 per cent – not great, and looking even more problematic now.

Before the Beast from the East set in, there were some tentative signs of improvement. According to the Bank of Scotland Commercial Banking’s Business Barometer, economic optimism in Scotland rose to 33 per cent in February (up 20 points from 13 per cent the previous month), while companies reported higher confidence in their business prospects at 37 per cent. And a net balance of 27 per cent of businesses in Scotland said they expected to hire more staff, up 23 points on last month.

However, looking at the snow-blasted roads and deserted townscapes across much of Scotland in the past week, it is almost certain that first quarter performance will have taken a hit. How much of a hit we will not know for some months as quarterly data on Scotland’s GDP performance notoriously lags UK data for the same period. Hopefully by that time, last week’s Big Freeze will be no more than a nasty memory. “Digital” businesses centred on the internet will have been only lightly affected, while travel and tourism should have recovered, with Scotland continuing to benefit from the competitive advantages of a weaker exchange rate.

However, headwinds persist in construction. The latest February Purchasing Managers’ Index (PMI) showed construction activity only growing slightly after stagnating in January, and with a modest drop in orders. In the final three months of the year, construction output contracted 0.7 per cent quarter-on-quarter – the third successive quarterly decline. The survey found manufacturing activity at an eight-month low, fuelling concerns that the economy had lost some momentum even before the Big Freeze. First quarter growth, says EY economist Howard Archer, could struggle to match the 0.4 per cent rate seen in the fourth quarter of last year.

And a key determinant of performance will be consumer spending. Even assuming there is an immediate catch-up in shopping trips over the next few weeks, the outlook is hardly buoyant. Last year consumer spending growth slowed from 2.9 per cent in 2016 to 1.4 per cent. Fragile household confidence, weaker growth in numbers employed and the likelihood of higher interest rates will continue to bear down on household budgets.

Set against this is the prospect of falling inflation, a recovery in pay growth – and a UK Chancellor, helped by better-than-expected figures on the public finances, in a position to step up public spending. However, a report from the EY Item Club due tomorrow is expected to predict little improvement in consumer spending this year, and a subdued recovery from 2019.