Britain's natural - not economic - disaster

ANDY BRUCE
Last updated 09:38 14/02/2014

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The floods engulfing towns and countryside across southern England could be severe enough to dent Britain's strong economic recovery in the first months of this year - but not enough to derail it.

Officials and independent analyst say the impact of the natural disaster will be seen over the short term as far as the overall economy is concerned.

Some areas of England have been underwater for more than a month after the wettest January on record, leaving homeowners displaced and crops ruined. Storms have even washed away key railway lines along the coast.

Although there is now momentum behind Britain's recovery, the last few years have shown how easily the economy's fortunes can be swayed by bouts of bad weather.

With more flood warnings in place, that could easily be the case at the start of this year.

On Wednesday, Bank of England Governor Mark Carney said transport, farming and other businesses would be hit by the flooding.

"It is something that will affect the near-time outlook, but let me caveat all that because I start with the real human cost," Carney said in an interview with ITV.

"What tends to happen with natural disasters is that you get a hit to GDP (gross domestic product) as it's going on and then you get a recovery; you get that back later on with the repair, so when you look over the stance for the horizon that the Bank of England would operate, one looks through it," he said.

BoE chief economist Spencer Dale echoed Carney's sentiments in an interview on Thursday.

Independent economists said the effect on Britain's economic growth could be noticeable, but not large.

"Without intending in any way to belittle the very serious problems faced by the many people who are being hit by the floods, I have so far expected the impact on the economy to be limited," said Howard Archer, chief UK and European economist at IHS Global Insight.

"While these local economies will be hit by people not being able to get to the shops easily or maybe not being able to get into work, the overall impact on the economy should not be that great."

Still, Archer said a lot depends on how long the bad weather and floods last.

The fourth quarter of 2012 was a case in point on how poor weather can dent the economy, which shrank 0.2 per cent over the period.

"Previous episodes of bad weather like snow have taken upwards of 0.1, 0.2 (percentage points off quarter-on-quarter GDP)," said Rob Wood, chief UK economist at Berenberg.

Economists polled by Reuters expect the economy will grow around 0.6 per cent in each quarter from here to mid-2015, although that view may change.

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"Construction is one area to really look for because that's where it can be affected across the whole country," said Wood.

Construction accounts for less than 7 per cent of Britain's economy and official figures on Friday will show the sector fared in December.

"If you get a bad number for that in January, it could knock Q1 (economic growth figures) off course," said Wood.

- Reuters

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