Bank holiday effects on the UK Economy
Bank holidays often lead to an interruption in regular business operations, causing a noticeable economic impact. According to the Office for National Statistics (ONS), the UK's GDP experiences a slight dip during bank holiday periods. Therefore, these periods must be considered when analysing economic data.
Recent GDP estimates published by the ONS showed the UK’s economy grew 0.5% in June, following a fall of 0.1% in May 2023. While this headline figure initially appears to show a large positive turn, a range of businesses cited the additional Coronation bank holiday in May as a reason for increased comparative output in June. While adjustments are made for regular calendar effects, there was no explicit adjustment for this ad hoc event.
Impact of the August public holiday
While the economic disruptions public holidays cause are spread throughout the year, the upcoming summer bank holiday weekend tends to have a more pronounced impact.
This holiday weekend typically involves high spending on outdoor activities and leisure travel. Select operators in the hospitality, tourism, and retail sectors can thrive over this period. However, the wider economic picture is more complex.
While the boost given to domestic tourism is significant, the local focus can negatively affect international tourism. This shift can impact revenues for companies such as airlines, hotels, and operators of international attractions that cater to British visitors.
Retailers can experience mixed effects during the summer bank holiday. While there is an increase in discretionary spending on items like outdoor equipment, summer fashion, and party supplies, the boost is often offset by a reduction in high street and city centre foot traffic as people head to the coast or countryside.
Hospitality businesses often see increased labour costs during the period that can eat into any additional footfall profits, and key workers providing essential services may receive overtime pay, contributing to higher operational expenses.
There are also increased risks to the manufacturing and production sectors, as industries which rely on just-in-time production schedules may face challenges during bank holidays due to labour shortages and supply chain disruptions. This is especially true during the summer public holiday when many workers take extended breaks, with manufacturers often already stretching to reach additional production targets around contracted full factory shutdowns.
Comparing summer to other holidays in the year
In comparison to the summer bank holiday, those occurring at other times of the year tend to offer different economic effects.
While causing a temporary halt in economic activities, the festive period around Christmas and New Year, including three public holidays, sees a significant boost in retail spending, as shoppers flock to buy gifts and supplies and seek out sale bargains.
The Easter bank holiday period has a similar, if more moderate impact on the economy to its summer counterpart, with its positive effects again typically spread across the retail, leisure, and tourism sectors.
Spring and early May bank holidays generally have a milder impact, more locally focussed with people engaging in local leisure activities and shopping.
Comparing the UK to other countries
While considering the economic effects of public holidays, it’s interesting to note that the UK lags behind Europe, Japan and the US in the number of days off, with those countries typically enjoying around 12 to 16 a year compared to our 8.
Despite the variance in quantity, the economic effects are relatively comparable across the board in developed nations, leading some commentators to question whether public holidays are needed at all.
While the tangible effects of these breaks are mixed, the softer benefits are undoubtable, and can in turn lead to the avoidance of tangible problems further down the line. In addition to contracted annual leave, bank holidays provide time for most to rest, boosting morale and productivity in the long-run.
In Summary
While bank holidays in the UK provide a vital break from regular routine and foster a sense of togetherness, they also come with variable economic costs and can lead to lumpy, cyclical returns across certain sectors.
Summer bank holidays, with their unique blend of increased leisure spending, tourism, and labour expenses, as well as the pronounced geographic dispersion of those effects, can have a more pronounced impact on the economy vs. similar breaks occurring at other times of the year. The net effect of public holidays is still the topic of economic debate, with some suggesting that they could be scrapped altogether with adequate staffing rotation and fiscal subsidy.
On a personal note, I’m not so sure about that. I am looking forward to spending time with family and doing my part to help the hospitality and tourism sectors next Monday.
https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/june2023