England in the World Cup - impact on the economy?
Last Wednesday Mark Carney, Governor of the Bank of England, said that England’s progress through the World Cup was an “unadulterated absolute good” for the economy. Previously, the Bank of England’s Deputy Governor Andy Haldane gave two reasons why he thought the economy might be doing better than expected making a rise in interest rates more likely: the summer sunshine and England’s World Cup achievements [Note 1].
So what might be the economic impact- especially if England wins its semi-final against Croatia? England represents about 86% of UK gross value added so it is the main influence on the size and growth of the overall UK economy.
Some retail activity and consumption may be lost (more likely postponed) as a result of people spectating rather than shopping. However, consumption of other items may rise- food and drink. This World Cup has already led to a large increase in spending on betting- one forecast has been that UK online betting will increase from £1bn in 2014 to £2.5bn this time. It remains to be seen how the gains from such increased gambling will be distributed between the punters and bookies (“problem” or addictive gambling in general remains a big challenge for UK public policy).
One very interesting economic theory is about how English progress in the World Cup could even lead to increased investment (and hence drive future growth). The 1930s economist John Maynard Keynes argued a lot of investment was determined by emotions and gut instincts - confidence about the future. The suggestion might be that footballing victories could fuel “animal spirits” in England and increase a hitherto very low UK investment rate. Well, maybe, though it is pretty clear UK industrial investment has been relatively low for a very long time and there must be a range of factors which explain this.
Another area of economic speculation would be how performance of the national team might impact on productivity. In the short run the effect could even be negative- too much distraction from work. However, there is also the long term possibility that in the warm glow of any further World Cup wins work effort and productivity rise.
So, there is an optimistic scenario whereby a mood of greater English self-confidence helps to boost the economy and perhaps even gives an increasingly embattled Prime Minister May some more room to negotiate a better Brexit deal from the hitherto immovable object of the European Commission.
History, however, suggests grounds to be cautious. The last time England reached the Semi-Finals was 1990 and in that year the economy grew by only 0.7%. England may have beaten Germany in 1966 but that did not stop German economic productivity subsequently surpassing UK levels. In 1966 the UK economy grew by 1.9%. Admittedly that may look good by the standards of what might be achieved this year but it was a fairly low growth rate compared to most of the 1950s and 1960s. And a year after the 1966 World Cup victory came one of the major economic reversals of the post-War period: Sterling underwent a major devaluation.
- In a previous press release (3 July 2018) I concluded that if the rather “artificial” gain to GDP through increased use of electricity is put to one side, the likelihood is that the economic effects of the heat wave will be broadly neutral (some more consumption of some items, more staycations but less retail activity generally, longer commuter times, some loss of farming output and probably decreased productivity). The really notable social cost of high temperatures may be “excess mortality” especially amongst the elderly.