Bill Jamieson: Bad weather puts recovery on ice
I’m glad I waited before buying. Whether it would have made it through this prolonged spell of Arctic weather is moot. If the biting winds hadn’t brought it crashing to the ground, the relentless snow would have obliterated the clock face. And what would possibly encourage me to go out and read the temperature? Even at the formal start of summer time this weekend I would have struggled to venture out to put the clock forward an hour.
A lost sale of a garden clock is the least of our worries. But it would be no exaggeration to say that our economic recovery has been stalled by a million such deferred purchases and has, literally, been put on ice.
The coldest March since 1962 has brought lower high-street footfall, a further tightening of the screw for retailers, empty café bars and restaurants, abandoned garden centres, boarded-up tourist destinations, supply disruptions, hold-ups in outdoor activity and construction – and, above all, the deep psychological depression brought on by freezing weather and bitter winds keeping us trapped indoors.
This portends a limp end to what is already a poor first quarter for the UK economy. Bad weather is a depressant – for the building sector, infrastructure work, staff absences through sickness and, most visibly, through a sharp fall in retail. And this prolonged winter, biting into the Easter weekend which normally sees a notable pick-up in consumer spending, will have left its mark.
So what is likely to have been the macro effect of the severe weather? And, if we can stop shivering long enough, what is the “look-through” to our economic prospects?
A clue as to the impact is the effect of the bad weather in January. Retail sales volumes fell 0.7 per cent month-on-month. Petrol sales fell by 2 per cent month-on-month, reflecting millions of decisions to stay at home.
The heavy snow that month almost certainly contributed to the disappointing 1.5 per cent month-on-month drop in manufacturing output. There was also evidence of a negative impact on both production and orders.
The past week has seen a procession of retailers blaming the weather for poor trading figures.
DIY giant Kingfisher, which owns B&Q, posted a 5.2 per cent drop in UK and Ireland like-sales and warned that the weather had wiped £25 million off annual profits.
And it is not just purveyors of Black & Decker hedge trimmers and decking maintenance products that have been hit. Since the start of the year, no fewer than 17 retailers and consumer groups have blamed the rain and snow for lower than expected trading. They include Halfords, the Domino’s pizza chain, William Morrison and Debenhams. Greggs also emerged as a casualty, reminding us that the Arctic spring comes after a miserable summer.
“The weather was particularly poor during the year, which was the second wettest in the UK since records began,” it said. “This was a significant deterrent to the frequent shopping trips that are a particular feature of a daily-purchase business like Greggs.”
However, there have been gainers as well as losers. Energy and utility companies will have experienced a big increase in demand. Online retailers stand to benefit from the enforced preference for home-bound sofa shopping. And travel companies have been enjoying a bonanza. Around 1.7 million are thought to have fled this Easter to warmer climes.
The price of so-called “budget” flights to Tenerife had shot to almost £700 by last Thursday – more than double the normal last-minute cost and seven times the advance asking price. Scottish airports are likely to have handled 100,000 departures to favoured sun-spots such as the Canary Islands, Majorca, Tunisia, Egypt and Turkey.
Might some retailers be using the weather as an excuse? “Bad weather” has been a feature of our condition since time began. How can a major department store such as Debenhams blame the snow for poor sales when John Lewis has reported a 13.5 per cent year-on-year rise in sales in the week ending 23 March.
In any event, disruptive though the bad weather will be for cash flow, many “lost sales” will be made good in the catch-up period when warmer weather does (eventually) arrive.
And beneath the permafrost, there are signs that the heart of the economy is still beating. Figures last week showed that the service sector, accounting for some three-quarters of the economy, saw output in January strengthen by a better-than-expected 0.3 per cent month on month and is up by 0.8 per cent on a year ago.
However, the concern for retailers – and the economy in general – is that consumer spending continues to be under pressure through inflation, which has moved back up to 2.8 per cent, and subdued wage growth. In addition, many households still have to undergo substantial and sustained deleveraging.
The past week brought two reality checks on the zig-zag nature of the recovery. UK consumer confidence softened in March, according to the European Commission, falling back to a five-month low of minus 18.1 – well below the long-term average of minus 9.9.
Concern will have been further fuelled by a disappointing CBI distributive trades survey for March. This dented hopes that February’s 2.1 per cent month-on-month jump in retail sales volumes marked the start of a linear recovery in household readiness to spend. Retailers reporting sales up year-on-year fell back to a six-month low of 0 per cent in March, down from a net plus of 8 per cent in February and well below the average 2012 balance of plus 11 per cent. Clothing and footwear in particular registered poor sales.
But there was a marked pick-up in furniture and carpets sales. This may have reflected a modest recovery in housing market activity. And the budget boost to mortgage lending targeted at “second steppers” should see this recovery strengthen over the next 18 months.
And despite March’s disappointing sales, notes Global Insight economist Howard Archer, there are some positives ahead for retailers. Specifically, a balance of 15 per cent of retailers expect sales to be up year-on-year in April – the best reading since December.
“Consumer confidence has been modestly firmer overall early on in 2013, while employment growth has been robust. Some mortgage interest rates have also been cut recently, which could free up a little more money for consumer spending.
“Furthermore, latest available hard data show that households’ real disposable income rose by a further 0.4 per cent quarter-on-quarter in the third quarter of 2012, after jumping 2.3 per cent quarter-on-quarter in the second quarter.”
However, two big concerns will dominate economic commentary for the rest of the year: the poor data on UK productivity (down 0.5 per cent quarter on quarter) and the marked failure so far in the government’s ambitions to rebalance the UK economy away from City of London-based financial services and towards wider manufacturing and services.
Here, continuing recession in the Eurozone and concerns over political stability in Italy look set to take over from the financial mayhem in Cyprus.
An absent garden clock and prolonged cold weather will soon prove to be the least of our problems.