The death of Queen Elizabeth II could be the blow that sends the United Kingdom’s already-strained economy into a “technical recession,” according to one economic projection, as some Canadians also ring warning bells about the effect of a national holiday on the country’s businesses.
The forecast follows economic data released earlier this week, which showed the U.K.’s gross domestic product (GDP) growth was weaker than expected in July.
With the British economy already contracting in the second quarter of the year, another consecutive quarter of decline would push the country into a recession, by some economists’ definitions.
Researchers at Pantheon Macroeconomics said in a note to clients on Tuesday that they expect the bank holiday for the queen’s funeral on Sept. 19 will take another toll on the U.K. economy.
Specifically, the projection calls for September GDP to drop 0.2 per cent lower than it would have been as a result of the holiday, which will see the closure of shops and restaurants as the country mourns the loss of its longest-reigning monarch.
“Following the news of an extra public holiday for the queen’s funeral this month, it is very finely balanced as to whether GDP drops again on a quarter-on-quarter basis … thus resulting in a technical recession,” the Pantheon note suggested.
The U.K.’s bank holiday does not force all businesses to close or give employees time off work, but makes the option available on a case-by-case basis.
The Pantheon forecast used June’s economic impact as a basis for September projections, as that month had two extra public holidays tied to the queen’s Platinum Jubilee celebrations.
Pantheon notes that the Sept. 19 holiday hit might be greater than June’s as some businesses that stayed open for the jubilee may “close as a mark of respect” next week.
Though the report highlights the recession risk tied to the holiday, Pantheon ultimately expects GDP will hold steady with Q2 figures — just enough to narrowly skirt the downturn in the third quarter.
But the British economy is already on unstable ground heading into the fall, with Capital Economics’ chief U.K. economist Paul Dales suggesting in a recent note that the country “is probably already in recession.”
The U.K. is currently facing a cost-of-living and energy crisis tied to Russia’s war in Ukraine. Prime Minister Liz Truss’ plans to cap utility costs in October “will help” but will not be enough to prevent the country’s GDP from falling in the coming quarters, Dales wrote Monday.
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The Bank of England pushed its benchmark interest rate decision by a week to Sept. 22 in light of the queen’s passing.
Pantheon said that “recent developments” have “bolstered the case” for the central bank to raise rates by half a percentage point rather than 75 basis points.
Dales said in his note that he also expected a 50-basis-point move.
Canadian concerns about economic impact
With Prime Minister Justin Trudeau’s announcement Tuesday that Canada will also hold a federal holiday on Sept. 19 to mark the queen’s funeral, similar concerns are being raised domestically about the impact on the economy.
The Liberal government has set the upcoming Monday as a holiday, but it will be left up to the provinces to decide whether workers will receive paid time off on Sept. 19.
P.E.I. says it will have a provincial holiday, for instance, but Quebec has said it won’t. Ontario will also not have a provincial holiday, with Premier Doug Ford instead announcing a “day of mourning” with a moment of silence.
The Canadian Federation of Independent Business (CFIB) urged provinces not to declare a statutory holiday on Monday, calling the six-day notice for such a move “deeply unfair to small businesses.”
“Small businesses are already struggling with labour shortages and requiring them to close or pay time and a half to their employees with no notice would be extremely costly or result in a day’s lost productivity,” said CFIB president Dan Kelly in a statement, adding a statutory holiday would “cost the economy billions.”
‘Smaller scale’ of events expected amid ‘shaky economic climate’
There are no official cost estimates for the queen’s funeral, which is sure to include expenses such as flowers and a military procession and fly-over, but journalist and royals researcher Emily Stedman says the Queen Mother’s funeral in 2002 is a possible benchmark for what to expect.
That event cost around £5.6 million (C$13.7 million based on exchange rates of the time), Stedman says, with £4 million going to security alone.
She expects events for King Charles III’s coronation will still cost “in the millions,” but should be “smaller scale” than rites for previous monarchs.
Queen Elizabeth II’s coronation in 1953 would have cost roughly £46 million pounds in today’s figures (C$69.6M), Stedman says, adding she expects a “similar figure for Charles’ coronation.”
But the U.K.’s “rather shaky economic climate” could see the royal family scale back the ceremony’s grandeur, she adds.
“We are really living in quite worrying times economically,” she says.
“These two events, the queen’s funeral and King Charles’s coronation, will be coming out of taxpayers’ money that we funded by the government. So I imagine there is much concern around the cost of these upcoming events and the impact this will have on the economy.”
— with files from Global News’s Anne Gaviola