A sideways look at economics
The Brits love talking about the weather. That fact, one would imagine, is covered in the ‘culture’ section of any decent guidebook aimed at foreign visitors to these islands. According to a survey carried out by the BBC, a staggering 94% of us will have talked about the weather within the past six hours alone. For my grandmother, the weather was central to the success or failure of any occasion. “Haven’t we been fortunate with the weather?” she was often heard to say as the day drew to a close. She was one who naturally prepared for the worst, and so this phrase would cover most eventualities save, perhaps, for the time back in 1987 when the south-east of the UK was battered by hurricane-force winds. Now regarded as a 1-in-200-year event, that particular storm was all the more galling for us as it was correctly forecast by the French, but not, famously, by our own Met Office.
With weather central to the British way of life, it’s perhaps not too surprising that the Bank of England’s Monetary Policy Committee recently blamed poor weather for sluggish economic growth at the start of the year. That got me thinking. Does the weather so affect the British psyche that its effects are visible in the official statistics? And if it does, can we observe similar patterns in data for other countries? I decided to investigate.
UK economic data are, of course, routinely seasonally adjusted by the ONS. We spend more in the shops in the weeks before Christmas than we do at any other time of the year. And those who are in the business of selling clothes eagerly await the changing of the seasons, because more money is put through their tills as winter turns into spring, and again as summer turns into autumn. These normal patterns of behaviour will be stripped out of the headline statistics. Because we’re working with seasonally-adjusted measures of economic activity, we need to examine seasonally-adjusted climatic indicators. It may have been cold at the start of this year — it often is — but was it unusually cold?
We collected data on the seasonally-adjusted volume of UK retail sales over the past 20 years. We also collected a measure of the average monthly temperature in central England over the same period. We then seasonally adjusted these temperature data ourselves. For those that take an interest in these things, we applied the US Census Bureau X-12-ARIMA method. This allows for secular trends in average monthly temperatures, as well as an additive seasonal component. The resulting series is shown, relative to its mean, in the chart below.
When the bar lies above the horizontal axis, the weather was unseasonably warm by an amount shown on the vertical axis (it has been unseasonably warm every month since April). When the bar lies below the horizontal axis, the converse was true. Now the all-important question. Do periods of unseasonal weather affect UK retail sales? Yes, they do! Specifically, we found that, when the weather is just one degree warmer than usual, the level of retail sales rises by 0.1%. This may seem small — bear with me for a moment — but it’s statistically significant, even at the 1% level. What this means is that we can be very confident that, when the weather is warmer than usual for the time of year, we do spend more in the shops (presumably on disposable barbecues and the like — there’s little point planning ahead). But just how good was the British summer? Very good for retailers, it turns out. Feeding this year’s weather patterns into our model, we find that the unseasonably warm summer weather ought to have raised the level of high street sales to the tune of just under £500 million during the period from June to August alone.
We looked for similar effects elsewhere. We chose another northern European economy (Germany), two Mediterranean countries (Italy and Spain), and the US. We collected equivalent measures of both retail sales, and temperature, but found nothing. There’s no statistically significant link between unseasonal weather patterns and high street spending in any of those other four countries. The weather does appear to be a peculiarly British obsession.