The real cost of the the big chill

The severe weather has prompted dire warnings about the cost to Britain's ailing economy. Could the recovery be derailed by snow?

Is the big chill going to put Britain's battered economy back into cold storage? Frightening numbers are doing the rounds about the financial impact of what has been the most severe cold snap in years – just as it seemed that the economy was finally heating up after more than a year of gloom.

The insurer Royal & SunAlliance, for example, has put the cost of the cold at £690m a day, utilising official statistics and data on previous episodes of severe weather. Not only will business productivity fall, the insurer notes, but local vendors will suffer reduced turnover and may even be forced to close for the day due to the lack of trade and staff.

The Federation of Small Businesses has suggested a slightly more conservative £600m a day. The figure is derived from the £6bn cost to business of each bank holiday and assumes that 10 per cent of staff are unable to turn up. Either way, add those up and the costs of three weeks of bad weather look alarming – anything between £12.6bn and £14.5bn. And those estimates could be conservative given that the current cold snap is much worse than has been seen for many years.

Just how realistic are these numbers, though? Certainly the freeze has had a devastating impact on smaller businesses, particularly those in areas that have been worst affected. "Serious snowfall is a challenge to businesses as transport problems mean fewer people make it into work, meaning fewer sales on the high street, and parents staying at home to look after children because schools are shut," says a spokeswoman from the Federation of Small Businesses. "Small businesses risk seeing sales take a hit because of the bad weather, but they are resourceful and will do their best to stay open and keep delivering services."

The Federation certainly wants new guidelines on school closures – with a third of Britain's schools having told their pupils to stay at home during the cold spell, parents who might otherwise have been able to get to work have been forced to stay at home to look after children.

The latter might find listening to the local radio to find their school has declared a "snow day" exciting. For employers, it is a nightmare.

That is not least because absences hurt smaller firms more than larger ones – a 10 per cent reduction in staff for a 10-man firm will have more impact than a similar level of absence at a company employing 1,000 members of staff.

But for some small businesses it has been worse than that. Keith Johnson, proprietor of the Baguette Express sandwich shop at Hawick in the Scottish borders, has taken the worst the weather has dished out for three weeks, but has had no choice but to close over the last couple of days because of the deteriorating conditions.

"I can't remember it being this bad since I was a child," says Mr Johnson. "We've had as much as 18 inches of snow and the temperature has been down to minus 16. We've not been able to get in to open up. Even though we have a member of staff in the town, there'd be no point her opening up on her own."

Each such day, Mr Johnson estimates that it costs the business £550. "It's tough," he says. "Hopefully we'll be able to make up some of what we have lost when we reopen."

Bigger businesses have not been immune, either. Sainsbury's chief executive, Justin King, with 25 years in retailing under his belt, describes the conditions as "without a doubt the most challenging we have experienced".

And retailers, which can at least take comfort from a roaring trade in soups, stews and cold weather gear, are by no means the worst affected. The leisure industry has been hit particularly hard – William Hill estimates that betting turnover has fallen to about a quarter of the typical £80m a day in the middle of the week thanks to the devastating impact on the racing programme. Pubs and clubs, meanwhile, report quiet trade as customers prefer to stay at home in the warm.

However, despite the freeze being the worst for years, it has arguably had much less impact on businesses – and especially bigger businesses – than in previous times.

Many companies, particularly those in Britain's all-important service sector, have been able to operate with far less disruption than in previous years thanks to the impact of modern technology such as broadband, which makes it far more practicable for people to work from home than it once was.

Says John Cridland, CBI deputy director general: "The severe weather has obviously caused massive disruption for companies across the country, and the people who work for them. It's particularly unfortunate because it comes at what is already a difficult time because of the economic situation.

"One thing that has made things slightly easier has been the willingness of people to use modern technology, especially broadband internet, to work from home to try to help companies keep going, and this is obviously a good thing."

Ironically another thing that has helped companies has been the epidemic that never was – swine flu. The scare of the summer has meant that most companies put in place contingency plans to ensure they could still operate effectively with a high level of absence and – perhaps – a much higher level of home working.

As a Sainsbury's spokesman explains: "What swine flu did mean was we had detailed plans to make sure we could operate effectively and continue to get enough deliveries."

The Federation says smaller businesses have benefited from this, too. "Having faced a difficult year, with heavy snowfall a year ago and the threat of swine flu through the year, small firms will have put continuity plans in place where possible and are prepared to cope with challenges such as these," a spokeswoman says.

And then there's the oft-quoted "Dunkirk spirit" of Britons. "As bad weather continues, small businesses are robust and resourceful so they will really start to be inventive and come up with practical ways of staying open."

So, an economic sting with a multibillion-pound cost that a country on its knees can ill afford? Or a temporary blip from which there will be a rapid recovery when milder weather arrives?

Philip Shaw, chief economist at Investec, thinks this episode falls into the latter category. He sees the economic impact of the freeze as likely to be short term only.

"The principal effect of this comes from people not being able to travel. But although there has been some disruption it doesn't appear to have been too serious," says Mr Shaw.

"The other question you have to ask is: does this put people off spending? Retailers seem to be up but the weather is a factor in terms of short-term output and spending. That said, I think it is extremely unlikely that the cold will result in a serious interruption to the recovery."

As a result, Mr Shaw is still expecting the announcement of economic growth of 0.4 per cent for the fourth quarter of last year – despite the pre-Christmas freeze – which would signal, snow or not, an end to the worst recession since records began. Which should provide a comforting glow after more than a year in the economic deep freeze.

Digging deep: Quarry workers brave the cold

Richard Crocker at Lantoom Quarry, in Liskeard, Cornwall, is fortunate in one respect – all his staff have turned up this week. "I had my newly recruited apprentice start work on his first day yesterday. Both yesterday and today he walked two miles through the snow to get to work as his car was stuck. I was very impressed. Let no one say young people are not tough or afraid to work," he says.

Still, the quarry has not been without its fair share of challenges. Quarries are potentially hazardous places, and use a good deal of heavy machinery. "While all the staff have got in, we've had to operate at half speed," says Mr Crocker. "You don't want to run the risk of people tripping over." Some salt would help, but that commodity has been in short supply. "There's just nothing to be found. We had to hunt around and eventually managed to buy the last of what a place had 15 miles away. We've managed to keep open when some have had to close, but one day we weren't able to get anything out because the hauliers were snowed in. The next day they were able to get here, but they weren't able to deliver."

The quarry has also had to cope with frozen pipes and frozen machinery during the cold snap. "We're still open for business though," says Mr Crocker. "We hear from the lorry drivers that some of the bigger quarries are closed."

Warm rush: The firms who say 'let it snow'

While many businesses are watching weather forecasts with fear and trepidation, the cold spell has provided a shot in the arm for others.

WD-40 is normally used to fix dirty, jammed, rusty, squeaky or damp problems. But the recent severe weather has led to a surge in sales with the company projecting a 300 per cent increase in January thanks to its de-icing properties.

A squirt can be relied upon to thaw frozen car locks, loosen padlocks and prevent windscreen washer spray nozzles from freezing.

Outsourcery, the communications and IT company, is also benefiting, with a 20 per cent rise in enquiries over the past few days, from small to medium sized firms seeking help "putting in place integrated communications solutions" as a result of the disruption from the bad weather.

In plain English that means upgrading a company's IT and communications facilities to ensure staff can work from home.

Some retailers, too, are reaping the rewards. Mark Hudson, retail leader at PricewaterhouseCoopers, notes that many shops would usually have been selling off cold weather gear in sales as they clear stock to allow them to bring in spring ranges. In the current climate, they've been able to offload it at full price.

He says: "The cold snap is a good opportunity for retailers to shed the remains of their winter stock such as coats and woollens. Some of these items, like gloves and scarves, are even being sold at full price, when they would typically be discounted."

Not that a lack of footfall bothers e-tailers. Mr Hudson points out that with so many people staying at home, internet sales are set to boom.

Then, of course, there are the agricultural merchants who supply salt and grit, a humble commodity that is currently proving more valuable than gold, oil, silver and platinum combined. And much harder to find too, leaving many folk to resort to cat litter, another booming commodity right now.

And don't forget Britain's energy companies, feeling a warm glow as the UK turns up the heating.