Rebecca Mari and Matteo Ficarra.
Floods are the most costly natural disaster in Europe. In the UK, they account for around GBP1.4 billion in annual losses. Yet, evidence on the macroeconomic implications is inconclusive. GDP often shows a puzzling delayed response, and prices can be pushed in opposite directions. Using a novel county level data set for England for the years 1998–2021, we estimate the impact of flooding on output and inflation at the sector level. Sectors react heterogeneously to floods, which explains well aggregate evidence. Prices respond in sectors related to both headline and core inflation, which has crucial implications for monetary policy. We further show that investing in flood defences mitigates the economic burden of floods by strongly reducing the risk of flooding.
