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What's The Cost of a Freezing Cold Winter?
...It's the weekend of Saturday 31st Jan and Sunday 1st Feb 2009 and the cold spell that started a couple of weeks ago continues....Newspapers are dominated by weather related headlines and the Guardian featured this one on Monday 2nd Feb: "Cost of arctic weather could top £1bn"
The article went on to say that the Arctic weather that struck Britain over the weekend could cost the UK economy over £1bn and could push more firms to the wall. The Federation of Small Businesses (FSB) estimated that one-in-five workers would fail to reach work on Monday 2nd Feb at a cost of £1.2bn to the UK economy.
"People are doing their level best to get in, and many are working from home over the internet. But we are now doubling our earlier forecast that 10% of people will not get to work," said FSB spokesman Stephen Alambritis. He warned that even firms which do keep functioning will be hit, with emails left unanswered, invoices not paid, and parcels undelivered.
"The lost productivity is largely a cost to business. If it leads to delayed payments the combined hit on profits and cashflow could send many businesses who might be close to the brink into premature bankruptcy," said Douglas McWilliams, Chief Executive of the Centre for Economics and Business Research (CEBR). McWilliams estimated that at least 2,000 more firms could fail in the first quarter of 2009 if the "big freeze" damages their trading.
'White-out Monday' 2nd Feb 2009 and The City of London was brought to a near standstill. Trading in shares and currencies in London was remarkably light as financial workers struggled to overcome train cancellations and the suspension of London's bus and tube services to reach their desks.
By lunchtime, only 336 million shares had changed hands in London (apparently, very low!) described by veteran trader David Buik of BGC Partners as a "moribund" trading session. "Its like Christmas Eve. There are very few settlement people to execute the transactions," Buik said. Only around half the staff at BGC, based at Canary Wharf, had made it to work by shortly after 8am. Buik himself reached the office thanks to a lift from a lorry driver, followed by a minicab ride.
Those who got as far as the Square Mile encountered treacherous pavements as the snow kept falling. At Blackfriars, Richard Turner of IG Index overcame the slippery conditions to reach the foreign exchange sales desk. He reported that trading was light, with the pound sliding against other currencies. "Volumes have dropped off today, which is probably because people aren't coming into the City," Turner said.
At the office of CMC Markets only half the traders arrived in time for the start of trading at 8am. "We are really struggling first thing with trade - volumes are thin because people just can't get into the office," said James Hughes of CMC.
Those who did get into London today were in a selling mood, with the FTSE 100 index falling by over 2.5% to 4042 points this morning, a drop of 107 points.
According to Buik, there are concerns that there could be a struggle to reconcile the day's trading. "The big worry for everyone is settlements," he warned.
The already struggling retail sector is expected to suffer from the poor weather.
"The weather is undoubtedly going to be detrimental," predicted Kate Heseltine, analyst at Seymour Pierce. "Few of the high street shops stand to benefit from the bad weather - perhaps Blacks, the outdoor specialist, may see a rise in snow boot and ski jacket sales - if consumers can make it out of their driveways." As consumers turned to online retail, many orders became delayed or lost as delivery vehicles became stuck in awful road conditions.
...Counting the cost!
The CEBR suggested that a 20% reduction in productivity would cost £900m, but pointed out that some companies will actually benefit. "Consumers spend more on heating and on warm clothes and any damage from the bad weather from accidents, or structural damage leads to increased spending on repairs," said McWilliams. According to McWilliams, the extremely cold winter of 1962-1963 cut manufacturing output in February 1963 by 75%, but higher spending on heating meant that overall GDP was unaffected.
Howard Archer, chief European and UK economist at IHS Global Insight, pointed out that small businesses could be forced to close altogether if staff could not get in. "The extent of the hit to the economy will obviously depend on just how bad the conditions get and how long it lasts for. It is also difficult to say how much work can be compensated for by people working at home or ordering online given the ever growing role of the internet," Archer said "Some of the loss of business may be quickly made up once the bad weather eases. Very cold weather will boost utilities output. But any disruption to business is the very last thing that the UK economy needs in its current extremely weak state".
(Reference: guardian business/2009/feb/02/snow-economic-costs)
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