Will extreme weather hurt economic recovery?

It’s been rather damp around here lately.

As I type this, there are fourteen severe flood warnings in place in Surrey and Berkshire, which means danger to life.

A couple of flood warnings remain in place in Somerset, where some villagers living on the Somerset Levels and Moors have been deluged by persistently high water levels for several weeks.

Strong winds yesterday brought down more trees, resulting in multiple train cancellations; I heard on the radio earlier than the West Coast mainline is currently closed ‘until further notice’.

And to top things off, a seemingly new phenomena of ‘sinkholes’ opening up in the ground is causing even more fear and disruption.

It’s a Daily Express headline writer’s dream, particularly with more heavy rain to come this weekend.

But what impact is all of this likely to have on the economy?

According to Capital Economics regional economist Richard Holt, the geographical area currently at risk from flooding accounts for around 13% of UK GDP.

He points out that it is too early to tell what the impact of this flooding and wild weather in general will be on the British economy, but floats (no pun intended) a GDP reduction of 1% if it caused a loss of output in those areas for around one month.

Yesterday we heard the latest update from the Bank of England, revising their previous ‘forward guidance’ and suggesting that interest rates would remain lower for longer, at least until the economic recovery is fully secured.

Bank of England governor Mark Carney explained that the Monetary Policy Committee will not be taking risks with the economic recovery.

He agreed with the view of financial markets which points towards a small rate rise in the second quarter next year.

Markets also expect interest rates to be at around 2% in three years’ time.

Is the current flooding causing you much disruption? Do you expect the wild weather to have an economic impact?

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