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
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.