Publications 
Ah, but it's cold outside.
Peter Charles | 22 December 2010
A happy new year to one and all.
Every winter our Swedish friend tells my wife and I that “there is no such thing as bad weather, only bad clothing”. And, up to point, she is right. The cold temperatures and snowfalls which have gripped the UK and so disrupted economic activity would be regarded as quite normal in Sweden or Canada or Russia and would have little impact on everyday life.
This is not to say that the weather currently being experienced in the UK is not exceptional and that it is, therefore, not surprising to find that households, businesses and public services (notably transport) are not fully equipped to manage the situation. As the CEO of London City Airport noted, in the first eighteen years of the airport’s operation there was never any snowfall on the runway. In the past two years, snow has caused intermittent problems. This winter, the snow seems likely to prove both more frequent and more persistent.
What impact will the current cold spell have on the mortgage and housing markets? One cannot see there being any direct impact at all. There is usually a seasonal lull in activity during the winter, followed by a seasonal uplift in the spring. The impact of an unusually severe winter would be to make this seasonal fluctuation more marked, but it is unlikely to make any difference to the overall level of activity over a six to nine month period. Indeed, it is just possible that, having been forced to remain indoors during the winter, the number of households that will be property hunting in the spring, looking to find to somewhere more congenial to live, might just increase.
But what about the rest of the economy? News bulletins and newspaper headlines have made some frightening estimates of the high cost to the country of the cold weather. But these are largely exaggerated. For the most part, households’ total spending will be little changed, although the pattern of their expenditure will almost certainly be different. There will be winners and losers. Even in November, retailers were reporting a marked increase in sales of men’s outerwear. This boost would almost certainly have been sustained into December, along with an uplift in sales of scarves, gloves and woolly hats.
By contrast, those retailers whose customers have been unable to get to the shops to buy their usual Christmas novelties will be facing a significant loss on unsold stock. And where this leaves travel companies and airlines is unclear. Will Britons be even more desperate to get away to warm climes next year, believing that the UK’s airports will have invested heavily on new equipment to ensure that the runways are kept clear and flight schedules maintained next year, or will they fear the worst and prepare to hunker down and hibernate through the winter, having invested themselves in improving the energy efficiency of their homes.
On balance, the harsh winter is likely to have a modest adverse impact on the economy. Sales will be lower in the short term and recent low levels of consumer confidence will hardly have been boosted by the bad weather.
Like most commentators, we were already expecting that the rise in the VAT rate and the pressure on households’ real incomes would lead to a sharp slowdown in the rate of output growth compared to the rapid pace of recovery recorded during the summer. Such a slowdown now seems even more likely.
This implies that both the economy and the mortgage market will prove remarkably flat through much of next year. In the absence of any significant short term movements, now seems an appropriate time to terminate our weekly Market update for members.
Rather, we will feature more market analysis and comment in our fortnightly CML news & views instead and also publish a greater number of ad hoc research notes. Please let us know, via Bob Pannell in the first instance, what topics would be of particular interest to your organisations.
