Britain’s fragile economy was already teetering on the brink of recession before his death Queen Elizabeth II last week. Now that prospect is much greater as businesses cancel events during the period of national mourning that culminates in holidays for the funeral of the deceased monarch.
Economists say high street shops closing their doors or opening reduced hours on Monday and the loss of a full day’s work will lead to a sharp fall in output as Britain struggles to boost growth amid a cost-of-living crisis.
Estimates of the damage to the economy are inevitably inaccurate and at this point rely almost entirely on anecdotal evidence. There is already a a stream of mourners to London, which creates an unprecedented demand for transport, which benefits the capital’s hoteliers, taxi drivers, hotel centers and flower sellers, offsetting losses elsewhere. However, this is unlikely to compensate for the overall drop in activity.
“We see a big risk that the UK will slip into a technical recession,” said Modupe Adegbemba, an economist at AXA Investment Managers. “As the UK mourns the death of the Queen, the extra day off granted for her funeral could push growth lower than we originally expected, raising the risk that the UK could slip into a technical recession this quarter.”
In terms of previous form, the question is not whether there will be a growth hit, but how big of a hit. There were extra public holidays in 2002 to mark the Queen’s Golden Jubilee and in 2012 to celebrate the marriage of the Duke and Duchess of Cornwall and Cambridge, both of which saw activity fall as factories, offices and construction sites were closed.
Over time, the rise of the digital economy has meant that the effects of the extra day off have lessened, but even so, the Queen’s Day double holiday platinum jubilee in June reduced the monthly growth by about 0.5 percentage points. A repeat of this next week would reduce the gross domestic product by £10-11 billion, given that the UK economy is £2.2 trillion.
On top of this there will be an additional loss of output due to the closure of businesses and the postponement of events for the 10 days between the Queen’s death and her funeral. Some of those costs will be delayed rather than lost forever, with football games postponed and meetings postponed.
Still, some of the spending will never be recouped, and even a small contraction in gross domestic product in September would be enough to tip the scales in favor of a second straight quarter of negative growth. The economy shrank by 0.1% in the three months to June. Economists consider two consecutive quarters of falling GDP as the technical definition of a recession.
Official data show that the economy delivered a weaker than expected recovery in Julywith a month-on-month gain of 0.2%, after a sharp 0.6% drop in output in June, when the loss of a full day of work due to the platinum anniversary weighed on activity.
After Liz Truss announced the plans freeze consumers’ electricity bills since October, analysts expect that headline inflation is now unlikely to rise much further than the 40-year record set in July of 10.1%. However, while helping households with their cost of living should reduce the severity of the recessionit is unlikely to be avoided entirely, as households will still face gas and electricity costs more than double what they were a year ago.
Paul Dales, Chief UK Economist at Capital Economy, said he expects GDP to eventually return to previous levels, but some of the growth that could have occurred will not be there. Dales had already reported negative growth in the second quarter between July and August, but now believes the decline in the third quarter will be sharper.
Some sectors and some regions of the UK will do better than others. London’s hospitality sector is expected to do well with crowds of people flocking to the capital to pay their respects. George Buckley, an economist at Japanese bank Nomura, said: “Florists in London will do well and coffee sales will pick up. But collectively, people will not produce as much.”
