Metis AM
Official figures released by the Office for National Statistics (ONS) have shown that the economy contracted by 0.1% in May. While this was more positive news than economists had predicted, it meant another quarter in which Gross Domestic Product (GDP) showed no growth.
May is typically a month when bank holidays abound, and this year featured an additional public holiday to celebrate King Charles III’s coronation. But how do bank holidays affect economic output, and did the additional public holiday contribute to the contraction in May?
The travel, leisure, retail, and hospitality sectors typically benefit from bank holidays
Bank holidays can be a great way to boost morale by enabling workers to take an extra day off and get together with friends and family. As a result, a bank holiday will often lead to increased spending in certain sectors too, including travel, leisure, retail, and hospitality.
For example, the Queen’s platinum jubilee in 2022 led to a boost in profits for many businesses as people headed out to celebrate the occasion. AJ Bell reports that spending at pubs, bars, and nightclubs increased by 74.2% that weekend compared to the same period the previous year.
Supermarkets usually see an increase in spending over bank holidays too, as people take the opportunity to indulge in their favourite food and drink.
An additional day off can slow growth in other sectors
Even though bank holidays are usually good news for sectors such as retail and hospitality, others don’t always fare quite so well.
Since most workplaces close for a bank holiday, productivity usually dips. Industries such as manufacturing and construction are hit particularly hard. School closures can also weigh on productivity in the workplaces that intend to stay open, as parents must arrange childcare or stop working themselves.
Moreover, prior to the Covid pandemic, the biggest monthly declines in GDP occurred on jubilee bank holidays. Output fell by 2.2% on the Queen’s golden jubilee in 2002 and by 1.5% on her diamond jubilee in 2012.
Inflation may have caused consumers to spend less in May than on previous bank holidays
The additional bank holiday in May had a positive effect on the arts, entertainment, and recreation sectors, according to anecdotal evidence submitted to the ONS in business surveys. Manufacturing and construction industries found that the additional bank holiday contributed to a reduction in output.
While the hospitality sector generally sees an increase in spending on public holidays, data showed that the King’s coronation weekend didn’t follow this trend. Sky News reports that spending was down at pubs and bars in May compared to April, when sales were strong. There are several factors that may have caused this.
Inflation has remained stickier in the UK than anticipated. Even though it is thought to have passed its peak, the pace at which prices are rising is still significantly above the 2% target.
In addition, increases to the base rate that are intended to fight inflation as well as market uncertainty following the mini-Budget in September 2022 caused mortgage costs to rise at the end of 2022. According to a report by the Guardian, the average rate on a new two-year fixed mortgage in May 2022 was 3%, compared to 5.26% at the start of May 2023.
These conflating factors have meant that many people have less disposable income, perhaps contributing to the lower-than-expected spending patterns on the coronation weekend.
Industrial action may have contributed to the economic contraction seen in May
The ONS has suggested several possible reasons for the drop in GDP in May separate from the additional bank holiday.
During the month several sectors were heavily affected by industrial action, including the health sector, rail network, education sector, and civil service. As well as the direct impact on these specific sectors, it’s possible that the strikes may have had a knock-on effect for other industries. For example, reduced service on the rail network during the industrial action may have meant lower footfall to many food and drinks outlets.
It’s difficult to quantify the effects of these factors on GDP, but there is evidence to suggest that they contributed to the fall.
Many believe that bank holidays have merit despite the cost
The Guardian reports that, according to government figures, a new bank holiday could cost the economy £2 billion. Yet despite economic cost, there are many who believe that the benefits they provide outweigh the disadvantages.
When an additional bank holiday was implemented for the Queen’s platinum jubilee in 2022, business leaders and campaign groups urged the government to consider making it a permanent addition to the UK public holiday calendar.
Entrepreneur Deborah Meaden led the campaign with support from the Confederation of British Industry, UK Hospitality, and the chairman of the Campaign for Real Ale among many others. They argued that an additional day off to celebrate the contributions of the Queen and public servants across the country would improve wellbeing and morale.
They also argued that the additional holiday could boost public spending in hospitality and retail – sectors that were particularly hard hit during the Covid pandemic.
Indeed, while it’s true that the bank holiday for the King’s coronation may have contributed to a drop in GDP for May, the event itself has made headlines worldwide, attracting tourists from every corner of the globe.
According to a report published by The Economic Times on the day of the coronation, hotel revenue was 54% higher than during the same period last year. Additionally, sales of tickets for flights coming into the UK for the coronation weekend increased by 149% within 24 hours of the event being announced.
Overall, the report suggests that the estimated boost in the travel and hospitality sectors from the event is in the hundreds of millions.
Get in touch
The UK economy has had its fair share of ups and downs in recent years. If you’re concerned about how economic events could affect your wealth, we can help.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
