Jubilations or a damp squib?

In our last newsletter we looked forward to the Diamond Jubilee and gave a brief assessment of the benefits to the construction sector brought about by the Jubilee celebrations. But what of the impact on the wider economy? Will the Jubilee give us all something to cheer about when the GDP figures for the second quarter are revealed at the end of August or will it prove as damp as the river pageant?

Obviously at this stage it’s too early to tell which way the outcome will swing but the mandarins at the Bank of England have clearly given a great deal of thought to the likely economic ramifications of both the Jubilee and the Olympics. So much so that the May Inflation Report saw over a page devoted to “The impact of special factors on the path of GDP growth in 2012”. And what were their conclusions? Given that the Jubilee fell in the last month of the quarter, their view was that the effect on Q2 would probably be muted, but that overall, output was likely to be down, given the effect of business closures or extended holidays as owners and workers took advantage of the additional holiday. No surprises there then.  

The BoE did look back at the effects of two previous extra holidays, those granted for last year’s Royal Wedding and the 2002 Golden Jubilee. They concluded that overall it was difficult to accurately interpret data for the Royal Wedding as supply chain disruptions from the Japanese earthquake also fell in that quarter, but that on balance an attributable drop in output in Q2 of 0.4% was probably balanced by a commensurate rise on output of 0.4% in Q3. A similar pattern was revealed by the Golden Jubilee. In their May report, the BoE’s view was that the Diamond Jubilee would lower growth by 0.5% in Q2, but that it would be balanced by a half percent uptick in Q3. However, the courage of their convictions wasn’t overwhelming; they noted that  “… there are risks on both sides of that central judgement.”

One early beneficiary though were retailers, particularly the food giants, who reported an immediate benefit from the Jubilee weekend – sales rose by £213m in the week running up to the celebrations, buoying expectations for a bumper growth in sales over the Olympic period.