Sir Mervyn King, governor of the Bank of England, said yesterday that it was too early to say whether the riots would have any tangible negative effect on the economy. (The question came as he downgraded the Bank’s economic forecast for the year.) Nor will the Treasury aide I spoke to this morning be drawn on the issue.
That doesn’t mean it is not to early to raise the suggestion, however.
George Osborne’s problem is that growth is currently so slow that even a few tenths of a percentage point can make the difference between expansion and contraction.
The possibility struck me last night as I drove with a friend past a Kingston nightclub (usually with an enormous queue) which was closed, despite being nowhere near the recent riot spots. The friend had just cancelled a West End trip to the theatre with his daugher. Meanwhile a friend of mine nearly cancelled our dinner tonight for fear of the riots. Central London may look busy but shops are still closing early and many people are staying in. The same is true of some cities in the Midlands and the north.
David Cameron hinted at this a few hours ago when he told the Commons:
“People should have the confidence to go back out and enjoy our cities so they can once again be the bustling thriving cities they can and will be.”
That is admitting that things are still not yet normal. Ivan Lewis, a Labour frontbencher, told me earlier today that British cities urgently needed to go back to “normal”.
“We have to manage to normalise as quickly as possible, firstly to send out a very clear message to criminal elements that they aren’t going to win, and secondly for the very hard-edged economic reason, the business bottom-line reason … we do need not just to restore order but restore normality.”
The Association of British Insurers currently puts the damage at £200m. Countless buildings, in particular shops, have been damaged or destroyed as well as looted. Pat McFadden, former Labour business minister, says you only have to look around his constituency of Wolverhampton to see the physical damage – although he wrly points out that clearing it up is a form of economic activity. In Enfield alone, where arsonists started a blaze at an EMI distribution warehouse, some 1.5m CDs were lost.
What should be of equal concern, however, is the intangible losses of cancelled dinners, aborted football matches and holidays taken elsewhere. For now there are few reports of tourists cancelling trips or going home early – but we simply don’t know how many tourists who wanted to come to the UK have changed their plans.
Formal footfall figures already suggest that the number of shoppers out on Tuesday was down 7 per cent on the same day last year.
And there is no doubt that the images have been beamed into living rooms of billions around the world. (One colleague was emailed by a friend in Karachi, Pakistan, worried about his safety.) The Chinese Xinhua news agency reported yesterday that “the image of London has been severely damaged, leaving the people sceptical and worried about the public security situation during the London Olympics“.
David Frost, director-general of the British Chambers of Commerce, says he is very worried about the impact on UK plc:
The riots of the past few days will have a lasting impact on businesses in many towns and cities across England. I have been particularly concerned about the future of small, family businesses, many of whom have lost not just custom but their entire livelihoods.
The UK’s image has suffered a significant blow this week, with knock-on impacts for our retail and tourism industries, as well as international investment in our cities and towns. We now need to show the world that Britain remains a secure and strong destination for investment and business growth
How all this will play into the formal GDP figures for July-September is still a matter of conjecture for economists and officials.
But when the last quarter showed anaemic growth the ONS blamed the weather and the Royal Wedding. The riots seem as plausible – or even more so – a reason for the economy to take a knock.
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