RAIN OR SHINE

As com­men­ta­tors at­tribute eco­nomic growth to a siz­zling sum­mer and the foot­ball World Cup, Bill Jamieson ex­plains why it’s not that sim­ple

Scottish Field - - IN THIS ISSUE -

Can heat waves and sport­ing events re­ally im­pact the econ­omy?

Ex­pla­na­tions for our fluc­tu­at­ing eco­nomic for­tunes are never hard to find. And for the lat­est changes in our na­tional per­for­mance we don’t, it seems, have far to look. It’s been the weather! That and the World Cup. So opined the Of­fice for Na­tional Sta­tis­tics on the re­cent uptick in that ever-ready mea­sure of our well­be­ing: Gross Do­mes­tic Prod­uct. Its ex­pla­na­tion for the pick-up in growth to 0.6 % in the three months to end July – the fastest for a year – was as­cribed to the warm­est weather in years and to Eng­land’s dreams of re­peat­ing 1966. The BBC du­ti­fully fol­lowed suit, re­port­ing: ‘UK growth helped by World Cup and warm weather,’ while the Fi­nan­cial Times, mer­ci­fully spar­ing us the dole­ful pre­fix ‘de­spite Brexit’, head­lined: ‘The UK’s scorch­ing sum­mer fu­elled a re­cov­ery in re­tail and con­struc­tion.’ So much for ONS sea­son­ally ad­justed data. But you don’t have to be a Scot for the eye­brows to arch a lit­tle at all of this. We cer­tainly shared the sun­shine, from Dornoch to Dum­fries. But higher out­put due to Eng­land’s per­for­mance in Rus­sia – even if we en­joyed some of the bon­homie and lift to gen­eral mo­rale? Did Harry Kane and the Three Lions re­ally boost our pro­duc­tiv­ity that much? There were cer­tainly more good days for work on build­ing sites. But to the ex­tent that this year’s bril­liant weather in­flu­enced over­all ac­tiv­ity it was surely in ear­lier than usual ex­its from the of­fice in the af­ter­noons and ex­tra days claimed for ‘sick­ies’ as mil­lions were glued to their tele­vi­sions watch­ing Ja­pan take on Uruguay. As for a weather up­lift, there is no com­pelling his­toric cor­re­la­tion be­tween higher tem­per­a­tures and eco­nomic per­for­mance: 1976 – the hottest UK sum­mer on record – was also a year of eco­nomic cri­sis when the govern­ment had to call in the IMF for an emer­gency loan. Where is the ev­i­dence that weather and sport­ing events re­ally made a dif­fer­ence to eco­nomic out­put? It’s a glib, ready-to-hand ex­pla­na­tion, as­serted with the same rigour as down­beat busi­ness news is rou­tinely blamed on ‘Brexit un­cer­tain­ties’. There were even clumsy at­tempts to ex­plain the 99% slump in prof­its at John Lewis (which takes in Waitrose) on Brexit as it ‘caused’ higher prices due to the lower pound. But how come Mor­risons was able to post a 9% rise in sec­ond-quar­ter prof­its? Over the sum­mer the skies over busi­ness were con­stantly clouded by Brexit fore­bod­ings re­sult­ing in re­ports of a con­tin­u­ing lack­lus­tre eco­nomic per­for­mance. And as we moved into the au­tumn there was fren­zied spec­u­la­tion on how long Prime Min­is­ter Theresa May would last in the job in be­tween gloom-laden com­men­taries on the tenth an­niver­sary of the Lehman Brothers col­lapse. You’d be for­given for think­ing we were sunk in a per­ma­nent pall of gloom. Yet how bad is the UK’s eco­nomic per­for­mance? And is our GDP re­ally so de­pen­dent on tem­po­rary, ephemeral up­lifts such as the weather and the World Cup? Here’s the pic­ture. Amid charges that we are the slow­est grow­ing econ­omy in the G7, UK GDP growth is reck­oned to be around 1.5% this year. This is on a ris­ing trend com­pared with a slow­down across the EU and is higher than growth fore­casts for two Brexit-un­af­flicted G7 economies, Italy and Ja­pan (nei­ther of whom made the World Cup semi-fi­nal). Yes, our growth per­for­mance con­tin­ues to lag be­hind that in pre-fi­nan­cial cri­sis years. And the in­tense, re­lent­less, fear­ful cover­age of Brexit has weighed on busi­ness mo­rale and con­fi­dence. But it is a mis­take to as­sume – as I sus­pect many com­men­ta­tors do – that busi­ness folk and en­trepreneurs are con­stantly glued to news broad­casts, tremu­lously fol­low­ing ev­ery daily twist and turn in the Brexit saga. What is the lat­est ver­sion

of the Cus­toms Ar­range­ment? What’s the new in­ter­pre­ta­tion of ‘Reg­u­la­tory Align­ment?’ The 0.6% growth recorded for the three months to July was the fastest since Au­gust 2017. Sun­bathed con­struc­tion sites were not the only ar­eas en­joy­ing a growth pick-up. The pro­fes­sional ser­vices sec­tor also grew by a brisk 4.4% over the same pe­riod. And while in­dus­trial out­put has been slow­ing, the man­u­fac­tur­ing in­dex has run up its 25th suc­ces­sive month of ex­pan­sion since June 2016. How fares Scot­land, which in re­cent years has been seen to lag be­hind the UK? Lat­est avail­able fig­ures – these trail the UK data by some three months – show that the econ­omy here per­formed bet­ter than pre­vi­ously thought at the start of the year: it is reck­oned to have grown by 0.4% in the first quar­ter – dou­ble the pre­vi­ous es­ti­mate of 0.2%, and higher than the 0.2 % growth in the UK econ­omy as a whole over the same pe­riod. This puts the an­nual rate of growth at 1.3 % – marginally higher than the 1.2 % growth in the UK econ­omy. The up­turn at the start of the year was largely driven by man­u­fac­tured ex­ports such as whisky, with a 3.6 % in­crease in goods be­ing sold around the world. Out­put in the ser­vice sec­tor grew by 0.4 % and in the pro­duc­tion sec­tor by one %, though the con­struc­tion sec­tor still regis­tered a fall – al­beit less than pre­vi­ously thought. Three other point­ers are wor­thy of note – what­ever the weather: the UK’s trade deficit nar­rowed by £1.4 bil­lion dur­ing the three months to July while lat­est num­bers show

Where is the ev­i­dence that weather and sport­ing events re­ally made a dif­fer­ence to eco­nomic out­put?

unem­ploy­ment has fallen again – on both sides of the bor­der. As for av­er­age earn­ings, these are now ris­ing by 2.9%, out­strip­ping in­fla­tion for the fourth suc­ces­sive month. Much has been made of the gloomy prog­nos­ti­ca­tions of the Bank of Eng­land and its gov­er­nor, Mark Car­ney. But he in­sists his ref­er­ence to a 35% col­lapse in house prices was not a fore­cast but an ex­trap­o­la­tion of a ‘worst case sce­nario’. Even if his protes­taions are dis­missed as politic backped­dling, the Bank re­cently raised its fore­cast for UK growth in the third quar­ter of the year to 0.5% – a pe­riod with no­tice­ably less sunny weather than the fa­mously scorch­ing April-June pe­riod. Such a level would see Bri­tain grow­ing faster than Ger­many – and even World Cup win­ners France. None of this should ob­scure the fact that our per­for­mance is still well below that en­joyed in the pre-fi­nan­cial cri­sis pe­riod, or that cer­tain sec­tors such as re­tail are hav­ing a truly tor­rid time. But it is nei­ther the weather nor ‘Brexit’ that is wreak­ing havoc in the high street. The chief rea­son here is the re­lent­less and seem­ingly un­stop­pable on­ward march of dig­i­tal tech­nol­ogy and the stun­ning growth in in­ter­net shop­ping. How ironic, in­deed, that one of the few queues to be seen in the high street this au­tumn will be for the new range of Ap­ple iPhones, with prices rang­ing up to £1,100. How­ever, the fact that sum­mer has moved onto the no­tably cooler au­tumn and there is no more World Cup ‘Three Lions’ eu­pho­ria to fill our cafes and bars does not mean we are des­tined for a GDP slow­down as pre­vi­ous ONS ex­pla­na­tions might sug­gest. Whether it is ro­bot­ics, AI or elec­tric cars, in­no­va­tion and en­ter­prise will con­tinue to surge on – what­ever the weather or the goal­mouth ups and downs of ‘Gareth South­gate and the lads.’

Below: English World Cup foot­ball fans cel­e­brate Harry Kane’s 22nd­minute penalty goal against Panama on 22 June 2018 at Brighton beach.

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