The economic consequences of the Royal Wedding

Public holidays in April and May this year followed one another in rapid succession. Hardly a week passed without a day off. But what are the economic consequences of a coincidence of Easter and a Royal Wedding? Will they be wheeled out as an alibi, like the snow in December, if the GDP figures for the second quarter of 2011 turn out badly?

The Office for National Statistics has already suggested that the monthly figures for April, which saw the biggest drop in manufacturing output for two years, owed something to the two four-day weekends in the month, combined with the ongoing effects of the Japanese tsunami. Since the recession began, every fresh set of GDP figures has been pored-over with agonising care, so a ready-made excuse for disappointing figures might come in handy.  

Determining how much a Bank Holiday costs the economy is more complicated than it might seem. It depends a lot on who you ask. The Department for Business Innovation and Skills (BIS) puts the cost at around £2.9 billion.

The TUC puts the cost as low as £1.2billion while the Confederation of British Industry claims it is closer to £6 billion. Neither goes into any detail of how these costs are calculated. But the TUC balances the costs of lost production against the increased income from services over a holiday weekend (tourism, hospitality, transport and so on). The CBI gives no source for its figure, but it is the same as that quoted by accountants RSM Tenon, who simply label it “lost productivity” (though I suspect they mean production.)

April was certainly an unusual month, with only 19 working days. An extra Bank Holiday followed a late Easter made for one working week which was only 3 days long. Many employees were expected to take leave for those three days, making a handsome 11-day holiday. Although exact figures for how many actually did this are not available, estimates have been made that it was between 20 and 29 per cent of the workforce. That is bound to have affected industrial production, and some factories stayed closed as the cost of opening production for those three days was too high. RSM Tenon believes that the combined effect of the two weekends could be as much as £30 billion, and cite predictions by Investec that GDP will fall by 0.25 per cent in Q2.  

Taking the modest assumption of continued growth at the same rate as in Q1 (0.5 per cent|) then the economy would, holidays apart, have grown by £1.65 billion. That would hardly be sufficient, even taking the most modest estimates, to overcome the expected production shortfall of that extra day off.

Bank Holidays occurring on the usual days are accounted for by the seasonal adjustments used by the ONS. The X-12-ARIMA programme it uses (originally designed by the US Census Bureau) is claimed to remove “systematic calendar-related variation associated with the time of the year, i.e. seasonal effects. This facilitates comparisons between consecutive time periods.”  But this year is different not only by virtue of the extra Bank Holiday but also the three-day week which many will have taken as holiday.

The programme is based on long-term data, but there is no such data for extra holidays, least of all if they fall back-to-back with Easter. A simple seasonal adjustment is not possible.

There is, however, some precedent. In the Queen’s Golden Jubilee celebrations of 2002, the UK got 2 days extra holiday. These two days led to a 9.2 per cent fall in manufacturing output and a 2 per cent fall in retail sales. Seasonally adjusted, this came down to 5.4 and 1.8 per cent respectively.

For the second quarter of 2011, much will depend on whether production lost in April was regained in May and June. And in the long-term, the effect of an extra few days holiday is likely to disappear. Demand for goods and services, both at home and abroad, are unaffected by a change in the calendar. But that doesn't rule out a bumpy ride in the short term.