With Britain’s economy showing a few ‘green shoots’ of recovery, is there the prospect of the fragile growth being thrown off course by the damaging impacts of recent flooding?
Mark Carney, The Governor of the Bank of England, warned last week that farming and other businesses hit by floods could have a negative impact on Gross Domestic Product (GDP). In previous periods of bad weather such as heavy snow, this has reduced quarterly GDP by up to 0.2%. However, severe cold is more widespread whereas flooding tends to effect a relatively small area of floodplain and coastline.
Extensive snow makes it almost impossible for construction to take place – since construction accounts for around 7% of economic activity, a wide-scale pause in building works has a much bigger impact than flooding.
If there is any possible ‘upside’ to natural disaster it is that, in purely economic terms, GDP tends to bounce back quite quickly. Japan for example has often experienced devastating earthquakes which produce an immediate hit to GDP as well as immeasurable human cost. However, once the reconstruction of houses, roads, bridges and other infrastructure takes place, the economy receives a tremendous stimulus and recovers quickly.
In the UK it will be the insurance companies who are amongst the first to count the cost of the wettest January on records by comparison, the 2007 floods cost insurers about £3 billion. Some economists have pointed out that repairs to roads and railway lines will probably help support the economic growth not to mention retailers of items like carpets and kitchens in affected areas.
There will clearly be some negative statistical impact of this years floods on the UK’s fragile economic growth. Although this is no consolation to people who have been severely affected, the flooding is unlikely to derail the recovery and could even provide a modest stimulus over the rest of the year.
Update June 2016:
Figures released in January this year by the Association of British Insurers (ABI) predicted that losses caused by flood and storm damage during the winter of 2015 would far exceed those of two years ago resulting from the wettest winter on UK record.
Insurance companies were expected to pay out around £1.3 billion for claims following a series of storms, flooding and heavy rainfall during the winter of 2015.
The economic losses from the winter 2013-14 have been worked out by the Environment Agency but are yet been published by the Department for Environment, Food and Rural Affairs. The ABI predicted that insurance claims would cost £1.1 billion, including £446 million for businesses and homes that were affected by heavy flooding.
The bill for damages recorded this past winter is expected to exceed the roughly £600 million in losses caused by flooding during 2012, but will be much lower than what was claimed for the summer floods of 2007, which totaled around the £3.2 billion mark.
The UK Climate Change Risk Assessment that was published in 2012, estimated that losses from coastal and river flooding in England and Wales could possibly rise from about £1.2 billion per year today to between £1.6 and £6.8 billion by the 2050s.
December 2015 was the wettest December for the UK since 1910 when Met Office records began. Climate change experts say that six of the seven wettest years on record in the UK have all occurred from the year 2000 onward. The UK has also experienced its eight warmest years on record. Climatologists are predicting that climate change is making the UK a warmer and wetter country overall.
The UK Climate Change Risk Assessment estimated that about 6 million residential and non-residential properties in the UK are exposed to some level of risk of coastal, river or surface water flooding.