- The May bank holidays could boost retail and hospitality firms
- But could the lost output tip us into recession?
They say that Romans celebrated 135 feast days a year, and that a mediaeval peasant worked for only half the year. Thanks to the coronation, the UK will enjoy nine bank holidays this year, instead of our usual eight - still miserly by modern European standards (see chart).
In economic terms, bank holidays are a double-edged sword. They dent overall productivity, and are bad news for firms who are forced to close for a day and still pay staff. Yet they are a boon for those businesses that see increased traffic. The Centre for Economics and Business Research (CEBR) estimates that retail sales are boosted by 15 per cent per day for a bank holiday, with sales skewing towards furniture, gardening and DIY. Hospitality and catering are also boosted by 20 per cent compared with a typical weekend.
The triple bank holiday could be just what the sector needs, but only if customers are willing to part with their cash. Earlier this month, KPMG research found that 55 per cent of customers reported reducing their non-essential spending this year, with nearly two-thirds of these making fewer trips to restaurants.
Coronation pageantry could be enough to persuade them. Modupe Adegbembo, G7 economist at Axa Investment Managers, told Investors' Chronicle that the additional bank holiday for the coronation is likely to boost activity, particularly when contrasted with the solemn event of the queen’s funeral in September. She added that “stores are likely to attempt to capitalise on the event to draw in consumers”, and expects a boost in spending at pubs, restaurants and hotels as a result.
But not all households will be able to take advantage of these extra days. Adegbembo points out that remaining pandemic savings are not evenly distributed, with “lower-income consumers who are more impacted by the rising cost of living less able to increase discretionary spending”.
The differing impact on sectors makes judging the overall economic effect of an extra bank holiday a challenge. Last year’s Platinum Jubilee bank holiday was subject to an extensive impact assessment, which calculated that the net impact on the UK economy would be -£2.39bn. Yet in practice, it is very hard to disentangle the impact of the additional bank holiday from other events going on at the time. The net loss was modelled by looking back at the economic effect of past Jubilee events. These were variously impacted by the 9/11 terrorist attack and foot-and-mouth disease outbreaks (the 2002 Golden Jubilee) and a period of appalling weather (the 2012 Diamond Jubilee).
What’s more, bank holidays often lead to displaced – rather than lost – output, as firms increase productivity to meet deadlines. Calculations from Axa suggest that historically output declines by 1.2 per cent in the month of the additional bank holiday, before rebounding by 1 per cent the following month. Interestingly, the scope for bounce-backs might have increased since the pandemic. The CEBR thinks that lost productivity is now “probably rather less than it might have been a few years ago”, thanks to the impact of working from home and greater flexibility.
Nevertheless, the wisdom of having so many bank holidays tightly concentrated is questionable: a decade ago, the government thought about moving the May Day bank holiday to October. Although the impact of next month’s ‘regular’ bank holidays will be accounted for in seasonal adjustments, the additional holiday for the King’s coronation will still pack a statistical punch.
The mechanics of gross domestic product (GDP) calculations mean that this shouldn't be enough to knock the UK economy into recession. Forecasts from Axa suggest that GDP will decline by 0.2 per cent overall in the second quarter of 2023, driven by weakness in underlying activity and distortions caused by the extra bank holiday. But this will probably be sandwiched between flat growth in the first quarter and slight positive growth in the third, meaning that the economy will avoid the two consecutive quarters of decline that constitute a technical recession. According to Adegbembo, the UK will still dodge a recession but by the "finest of margins”.
