Yahoo Finance UK’s More Frequent Rainy Spells Make Economy Data Harder to Read
(Bloomberg) -- Climate change in Britain is delivering more rainy and extreme weather, turning a national stereotype into a headache for economists trying to predict retail and growth data.
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The UK had the wettest spring since 1986 and some of the most rainy months since 1836. A recent study found a global rise in temperatures made storm rainfall over this past winter about 20% worse, damaging crops, causing power cuts and flooding about 7,000 homes and businesses.
That’s made rain a constant feature of recent UK economic releases. Heavy downpours played a part in last year’s recession, when one of the most rainy Octobers on record dragged down construction, retail, pubs and tourism. Retail sales data in particular are becoming “exceptionally choppy,” according to Edward Allenby, UK economist at Oxford Economics, with shoppers swinging from rebound to restraint in gloomier months when rain makes people reluctant to visit high streets.
“The unusually warm but wet weather in February to April this year has likely contributed to volatility in retail figures,” said Tera Allas, director of research and economics at McKinsey in the UK. “It is possible that the narrative is more focused on weather than it has been historically.”
The issue will come into focus on June 12, when the Office for National Statistics released gross domestic product data for April and then again on June 21 with retail sales figures. Analysts expect a sharp slowdown to near the economy’s point of stagnation after 0.4% growth in March and a 0.6% gain in the first quarter. The Bank of England expects the second quarter to show a small increase of 0.2%.
The British Retail Consortium predicts a 0.7% gain for shop sales in May, more than double the three-month average, driven strong food sales and a “minimal improvement to the weather,” said its Chief Executive Officer Helen Dickinson.
Scientists have long warned about the link to broader shifts in the climate and bouts of extreme weather. A warmer atmosphere holds more moisture, enabling storm systems to pick up more water than they otherwise would do, according to Ed Hawkins, professor of climate science at the University of Reading.
Research shows that’s likely to feed through to the economy. A 2022 study from the Potsdam Institute for Climate Impact Research found that an increase in wet days and extreme rainfall slows down economic growth, based on data from 77 countries between 1979 and 2019. The effect is particularly pronounced in rich countries, and in the manufacturing and services sectors.
For Britain, that’s meant extra noise in the data used by the government and Bank of England to measure the economy. The central bank is closely watching the numbers to assess when it can begin cutting interest rates, while Prime Minister Rishi Sunak hopes a return to growth will help the ruling Conservatives close a 20-point gap with Labour at the July 4 general election.
Poor weather feeds through in many ways. It has a direct impact on construction, which relies on relatively dry and calm days to finish projects. It also tends to leave consumers cocooned at home instead of out shopping and spending. It can disrupt flows of goods by flooding roads or slowing traffic.
Online shopping usually benefits from bad weather, with Adobe Digital Insights estimating that 1-4 centimeters (0.4-1.6 inches) daily rainfall can boost Internet spending by as much as 4.4% above normal levels.
“Extreme weather does not just impact the products UK consumers buy, but also how they shop, with many heading online to purchase items instead of braving difficult weather conditions in-person” said Vivek Pandya, lead analyst at Adobe Digital Insights.
Economists caution the government’s Office for National Statistics is exaggerating the impact of weather in its data. “Weather is an easy indicator to observe, and has become more of a focus in recent years, whereas data on many of the other factors is often available only with a considerable lag,” Allas said.
At the same time, they point out that volatile figures make it more difficult to distinguish the actual economic narrative.
December sales fell at their fastest pace since Covid lockdowns, contributing to the economy dipping into a recession. But figures in March showed a strong rebound, driving a recovery in the first quarter. Then came April, when the ONS blamed the weather for the disappointing numbers.
“The retail slump in late-2023 was more a source of noise than a signal about the health of the UK economy,” Allenby said. “In a similar fashion, we expect May’s retail sales data to rebound strongly following April’s drop.”
Climate change-related volatility adds to hurdles to diagnosing the UK economy coming from potentially faulty job market data. ONS figures on unemployment, employment and economic inactivity have been hit by falling response rates for the official Labour Force Survey.
Climate scientists warn that the weather impact is about to get worse. Besides hitting footfall and urban businesses, heavier rainfall would also hurt farming and food supplies.
“In the UK and Western Europe, our winters are likely to continue to become wetter, and in the summer we’ll see more of these very heavy showers,” said Helen Hooker, a research scientist in the Department of Meteorology at the University of Reading. That will mean more “flash flooding that we see in rural areas, but in urban areas causing more disruption due to things like the drainage network and increasing urbanization.”
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