A building burns as a riot police officer watches in Croydon, south London, Monday, Aug. 8, 2011. AP Photo/Dominic LipinskiDominic Lipinski/The Associated Press
The looting and burning of U.K. cities this week probably had less impact on the economy than the royal wedding – at least in ways that statisticians can easily measure.
Roughly one-tenth of the country's shops, pubs, restaurants and clubs were directly or indirectly affected by the riots, according to an estimate by the Local Data Co. Even in unaffected areas, many shops closed early for several days this week.
While that will have depressed retail and leisure sales at a time when people are already spending less, the rest of the economy kept humming as usual. "The fact that you still saw the wider service sector and the manufacturing sector continue on regardless means we are looking at a far smaller impact than something like the Royal wedding [when everyone took the day off]" said Philip Rush, U.K. economist at Nomura. "In terms of gross domestic product, we're talking about a couple of basis points." (A basis point is 1/100th of a percentage point.)
Last month, the Office of National Statistics estimated that GDP growth of 0.2 per cent between April and June would have been more like 0.7 per cent but for the Royal wedding and the tsunami in Japan. The ONS said that output between July and September might well be affected by the riots, but it was unlikely to try to quantify it.
Behind the dry numbers, though, economists say there could be less tangible but more long-lasting effects, particularly on the most badly damaged neighbourhoods. Many of these areas were deprived to begin with, and could now find it even harder to attract retailers and residents.
Walworth Road in south London, for example, was already pockmarked with boarded-up shops due to the declining incomes of local people. "Business in this area is on its knees," said Mark Lynne of Lynne's Electrical Superstore, which was looted on Monday night along with a dozen others. "There'll be a lot of businesses that won't get back on their feet again."
David Frost, director-general of the British Chambers of Commerce, said the riots could have a "lasting impact on businesses in many towns and cities" across the country. "I have been particularly concerned about the future of small, family businesses, many of whom have lost not just custom but their entire livelihoods," he said. Under political pressure to help small businesses, the government announced measures this week to mitigate their problems, such as stop-gap funds and the suspension of business rates.
But it is too soon to tell how much damage has been done to the country's image abroad and what the impact might be on tourism. David Jansen of Tourism Alliance said there was "absolutely minimal impact" on tourism in the aftermath of the unrest. The European Tour Operators Alliance reported 3,000 cancelled trips to London from abroad, out of 30,000 to 40,000. "It's a very low number and we expect business to get back to usual very quickly," Mr. Jansen said.
Others are not so sure. Nick Bish, chief executive officer of the Association of Licensed Multiple Retailers, said London publicans were very worried about the potential impact on tourism, especially ahead of the Olympics, which they had seen as a likely boon for the trade.
Besides tourism, London's property market has long been seen as a safe place for the wealthy from the Middle East, Europe and Russia to park their money. Although well-off areas were largely untouched by rioters, Chris Williamson, Markit's chief economist, said the riots could have damaged the city's status as a haven.
"It's lifted a curtain internationally on this small but obviously significant underclass in the U.K.," he said. "Domestically we know it exists – we see it for ourselves – but it's not something that is widely seen internationally."
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