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‘Absolute core’ of UK economy hit by storms

Monday, 17 Feb 2014 | 5:56 AM ET
The economic impact of the UK floods
Monday, 17 Feb 2014 | 2:10 AM ET
Richard Holt, regional economist at Capital Economics, discusses the economic impact of the severe floods that have hit the U.K.

Heavy storms that have flooded around 6,000 U.K. homes could knock more than 1 percent off 2014's economic growth, a U.K. economist told CNBC on Monday.

Richard Holt of independent research firm Capital Economics said the floods had heavily hit the U.K.'s "economic heartland", which accounts for 13 percent of the economy.

"What is very unusual about this particular episode is that the hardest hit part of the country has been the Thames Valley and the M4 corridor (the area that extends from west London towards Swansea in Wales), so that's high technology companies, life sciences companies," Holt told CNBC.

"We don't know how many of those companies have been affected — there really is very little information — but it the absolute core of the U.K. economy in terms of growth."

Peter Macdiarmid | Getty Images

In a research note, Holt calculated that one month's loss of economic output in the areas affected would reduce U.K. GDP (gross domestic product) by just over 1 percent.

The U.K. experienced the wettest January on record last month, with widespread flooding continuing into February. The U.K. Environment Agency has sent over 2.5 million flood warning messages to people with properties at risk of flooding since the start of the year, and issued 16 "severe" flood warnings – implying "danger to life".

The hard-hit Thames Valley — which extends from the west of London through Oxford, Reading and Swindon — is known as a technology hub for electronics, digital media and life sciences. Companies with U.K. headquarters in the region include Microsoft and natural gas company BG Group.

'We've lost everything': UK family affected by floods
Nick Dixon, an ITV reporter, talks to a family affected by the severe U.K. flooding. The family say they are "devastated".

Insurance claims for the flooding could surpass $1 billion, Jeremy Haynes, an insurance partner at Deloitte, told CNBC, last week. This would equal the insurance cost from the U.K. floods of 2012, which were estimated at between $0.8 billion and $2.4 billion.

(Read more: Insurers braced as Britain battered by storms)

Also last week, Bank of England Governor Mark Carney told reporters that flooding would affect the "near-term (economic) outlook". However, he added that natural disasters tended to be followed by a recovery in output, as repair work got underway.

Holt concurred that rebuilding efforts could help pare the economic hit from the weather.

"It is possible that people will now take the opportunity to invest more than they had already. But there are also going to be a lot of companies who are financially insecure, also individuals who are financially insecure who won't be able to rebuild fully," he said.

—By CNBC's Katy Barnato. Follow her on Twitter: @KatyBarnato

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