Epidemic could cost economy £7bn, says report
By Christopher Adams, Economics Correspondent - Mar 23 2001 00:00:00
The sudden acceleration in the spread of the foot-and-mouth epidemic, which experts predict could last until August, has increased the estimates of the likely economic impact.
In an independent report on Thursday the Centre for Economics and Business Research cut its forecast for economic growth this year from 2.3 per cent to 2 per cent, blaming the outbreak of foot-and-mouth. The ultimate cost to the economy could be as much as £7bn, the report suggests.
However, the Treasury downplayed the disease's impact. While it was a "big issue" for livestock farming and tourism, the aggregate economic effects would be small, officials said.
Economists say that foot-and-mouth will affect the economy in several ways. Agricultural output will fall in coming months, as overseas sales of meat slump due to export bans and domestic production is replaced by rising imports.
In the 1967 outbreak, the fall in agricultural output cut overall gross domestic product by 0.1 per cent. A similar effect today would represent about £1bn in lost output.
Agriculture's share of production has declined since then and fewer cases have been reported since detection this time. However, the disease is now spreading more rapidly and the total could overtake 1967. "If this outbreak follows a similar pattern, then it will not be over until late this year," said Michael Saunders, economist at Schroder Salomon Smith Barney Citibank.
The damage to tourism may be a bigger blow. From hotels to zoos, parks, and the Cheltenham racing festival, foot-and-mouth has hit rural tourism. Domestic consumers deterred from travelling to the countryside could spend money on other leisure. Holidaymakers may choose city breaks or go abroad instead.
More foreign tourists, however, could avoid Britain altogether. The CEBR said that income lost this way could rise to £5bn - more than a third of all spending by foreign tourists. The Treasury believes this estimate is extreme because 80 per cent of tourists visit urban areas.
Finally, rising meat prices could push inflation higher in the short term. Wholesale prices are already rising and supermarkets may pass on their increased costs to consumers. The effect on the retail prices index will be small, because meat comprises a tiny part of it.
* JCB, the world's fifth largest construction machinery business, is to cut its UK workforce by 10 per cent as a result of the economic slowdown in the US and the foot-and-mouth outbreak in the UK, writes Jonathan Guthrie. The privately owned group, which is based in Staffordshire, said it needed to lose around 350 jobs "as soon as possible" in response to a fall in orders. It said the foot-and-mouth epidemic had halted orders from farmers.
© Copyright The Financial Times Limited 2001.
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