At the end of 2010 the UK economy had a shock 0.4% decline. Back then the relatively new Chancellor blamed inclement weather (large parts of country had been plagued by snow and ice for the month of December), but said he remained committed to his fiscal austerity drive.
Now, 18 months later, the weather gets blamed yet again for another shockingly bad quarter for the economy, with the extra holiday granted for Queen’s Diamond Jubilee Holiday thrown in as an added extra excuse. But George Osborne may not get away with it this time.
The Chancellor has been under growing pressure to step down with the appalling growth figures icing a cake made from embarrassing Budget U-turns and an increasingly unpopular austerity mantra. So how does the Chancellor hold onto the keys of Number 11 Downing Street?
Can we really blame the Queen’s rain
The first thing he needs to do is prove that the weather and the Queen’s longevity on the throne really are to blame for the weak growth figures.
The 0.7% decline in output between April and June was much worse than forecasters expected, which suggests that the preliminary figure could be subject to upward revisions in the coming months.
The Office for National Statistics (ONS), who produce the GDP figures, is notorious for revising data. This time it almost prepped the country for a revision when it said in its press release that “it is not possible to quantify the impact of the changes to the bank holidays at this stage”.
That’s code for saying we have no clue as to how much the extra Jubilee Bank Holiday cost the economy. This is important, if it had a big impact on output in June, with lots of people taking advantage of the extra-long bank holiday to take a vacation, then it is likely to only have a temporary impact on growth.
However, if the Bank Holiday turns out to have had a fairly negligible impact then that is bad news for Osborne as it suggests the economy could be as weak as the data suggests.
The price of Diamonds and gold
The ONS can look at previous Jubilee celebrations to see what effect they had on the economy – back in 2002 the Golden Jubilee impacted growth by 0.27 percentage points. However, this isn’t a perfect comparison since the global economy was at a different stage of the cycle back then, and we weren’t in the middle of a recession.
The ONS may also produce an analytical article on how the “special event” affected the UK economy over the second quarter. However, this may take some time to produce, so don’t hold your breath George, as the ONS may not get you off the hook for some time.
Economic storm clouds
Now turning to the weather. It was a cold, wet and nasty spring; in fact June was the wettest since 1912! So how does the weather affect the economy?
Firstly, it puts people off going out to the shops to spend money. Also, rather than buying up new summer wardrobes some may have stuck with their winter clothes for much longer than normal, and shelved buying new shorts/T-shirts/sandals etc.
Also, bad weather can hinder construction projects and any other businesses that predominantly operate outside. Likewise, if you own a factory that needs to deliver goods to customers, then bad weather can hinder those deliveries – potentially leaving you out of pocket along with the delivery company.
The ONS doesn’t treat the bad weather as a “special event” – we are the UK after all, and bad weather is part of the package, however it appears likely that the weather had a big impact on the construction sector.
It fell a whopping 7% between May and June (according to the preliminary ONS estimate). However, some of this lost production could be made up for in July as the weather has dramatically improved.
But, the weather only makes up some of the story. The construction sector was the weakest sector of the UK economy in the past three months, dropping 5.2% relative to the first quarter. Worryingly, construction also fell in the first three months of the year, contracting by 4.9%, even though we had a remarkably mild winter this year.
Game over for George?
There is a chance that the fall in inflation here in the UK – consumer price rises have gone from 5.2% year on year in September last year to 2.4% in June – could help us all to spend some more now that the sun has graced us with its presence. Also, there could be some improvement in the sectors of the economy impacted by the extra Bank Holiday as they get back to full capacity again.
But even taking this into account, the underlying strength of the UK economy looks weak at best. Unemployment might be falling – a little – but it remains very close to the 17-year highs recorded earlier this year, wages are stagnating, confidence is low and the housing market looks like it may take a bit of a battering.
The trouble for George is since he first blamed the weatherman back in 2010, there have only been two quarters when the economy has actually grown, and the other four have seen contractions.
The economy may be getting battered by factors outside of his control including the weather and the eurozone debt crisis, but it’s not good for a Chancellor to have such dismal growth data under his watch.
George may have just run out of excuses.