Economy feels chill as UK grinds to a halt

Cost of travel and retail chaos running at £1bn a day / Government under pressure over lack of preparation

Jonathan Brown
Monday 20 December 2010 01:00

The economic impact of the freezing winter will deepen this week as Britain prepares for more travel gridlock, and millions of workers, travellers and shoppers were expected to stay at home in the run-up to Christmas rather than brave the icy conditions.

Heavy snow and sub-zero temperatures cost the aviation and retail industries many millions of pounds in lost revenue during one of the most crucial weekends of the year.

Heathrow, the world's busiest international airport, was closed to all but a handful of flights on Saturday and yesterday, forcing thousands to abandon their festive travel plans. Meanwhile, shopping centres in the South were also badly hit as consumers were forced to postpone buying Christmas presents on what had been billed as "Super Saturday". But with the Met Office predicting no let-up in freezing conditions and more snow likely in the South-east, the North and Scotland, economists fear that the knock-on effects will begin to hit the whole of the UK's economy at a key moment in its fragile recovery from recession.

Estimates from the insurer Royal Sun Alliance (RSA) have put the cost of the weather to the economy at £1bn per day, a sum that is thought to be hitting retailers, restaurants and bars the hardest. The total cost is expected to be around £13bn.

Howard Archer, the chief economist at IHS Global Insight, said many firms could now consider working between Christmas and the New Year to make up for lost business. But retailers, who had been hoping for a bonanza festive season as consumers sought to beat the January VAT rise, fear that many shoppers might now simply not bother.

"It now looks highly probable that some people may end up buying fewer Christmas presents and these sales are not subsequently made up," said Mr Archer. "If the bad weather persists most or all of the coming week, these problems will be magnified."

Even John Lewis, which has been leading the revival in the UK's high street's fortunes, saw sales slump by 10 per cent on Saturday, enduring nearly £5m in lost revenue when two of its 32 stores were closed by the weather on what should have been the biggest trading day of the year. Brent Cross shopping centre in north-west London was forced to close its doors.

Sarah Cordey, a spokeswoman for the British Retail Consortium, said that shops were deciding that they had to stay open later or open earlier. "The only comfort for retailers is that those areas which were affected by snow earlier in the month have to a large extent been able to make up for lost trade this Saturday and the latest snow seems to be in new areas."

Retail footfall across the UK on Saturday was down 24.3 per cent on last year, according to researchers Synovate. The worst affected areas were the West Midlands and South East, down 30 per cent.

With Heathrow predicting more cancellations today and desperate passengers having to spend another night on its terminals' floors, snow could not have come at a worse time for British Airways. Yesterday, the airline was criticised by passengers, some of whom had been forced to spend eight hours aboard planes waiting for take-off, only to be told their flight was grounded. Passengers described conditions within the flagship Terminal Five – used exclusively by BA – as "third world".

John Strickland, an aviation consultant, said cancellations and the cost of attending to stranded passengers came at a time of year when all airlines hoped to recoup – with the proceeds from sold-out festive-season flights – the losses incurred during other winter months.

"They could well run into a double-headed whammy of losing revenue and having to pay out for hotels, meals and in a few cases chartering aircraft," Mr Strickland said. "It could be touch and go whether they will make an annual profit now."

Kate Gibbs of the Road Haulage Association said recent weeks had been "absolutely horrendous" for the freight industry with some companies facing bankruptcy. "We need to get this grit situation sorted," she said.

"Where is the grit on those roads where the main distribution depots are and where the factories are? This is the third time we have been caught out recently. We should be prepared for cold winters."

There were warnings that self-employed people were likely to be particularly badly hit, and businesses were advised to prepare for the effects of workers staying at home. Dr Adam Marshall, director of policy at the British Chambers of Commerce, said: "Absenteeism is a concern for business at this time of year."

Philip Hammond, the Secretary of State for Transport, found himself under renewed attack for his handling of the crisis and the availability of grit. Mr Hammond ordered the Government's chief scientific officer to investigate whether harder winters might now merit further investment in resilience measures.

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