Trade war - or cold war - with Russia

Not satisfied with interrupting our gas supplies, Russia has raised the stakes by sending us 10 inches of snow from Siberia in the last 24 hours.

Of course these two policies interact nicely - both driving up the price of gas, which will help to offset some of Russia's $1 billion a day of lost revenue from the collapsed oil price.

Now you may say that it's not in Russia's power to dump that much snow on the British market - but I would point out that is only true in a model with perfectly flexible exchange rates. Clearly in this weather the exchange rate, along with everything else, is frozen.

Walking around London today I think it's clear that there will be a measurable impact on quarterly GDP. Most shops and restaurants are closed, and lots of people didn't go to work today. Naturally some demand will simply be stored up, but some will be lost forever. Given around 60 working days in a quarter, a 20% loss of output on one day translates to about a 0.3% decline in GDP - about 1.2% annualised. So if the GDP figures in April show an unexpectly large decline, don't forget this.

However, even if measured GDP has decreased, hedonic utility - which includes leisure time and, more importantly, snowball fights - must surely have increased. Enough to compensate? Maybe.

Incidentally, the last time we had a seriously harsh winter (1962-63) economic growth stagnated at 0.1% in 1962 but bounced back to an above-trend 3.6% in 1963. And that winter was much worse than this one. So perhaps we will thwart those Russians with our British pluck and ingenuity.

Still, that Putin is a wily chap. And to arrange this when the Chinese premier is visiting London - just to send an extra signal there. I wish they still gave degrees in Kremlinology.


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