In a week marked by escalating unrest in the Middle East, global leaders face critical decisions, raising concerns about the world economy.
Amid rising international tensions, the global economy has shown unexpected resilience in early 2023, but growth prospects remain low. Although headline inflation is decreasing, core inflation persists due to the services sector and tight labour markets. Risks, particularly with increased tensions, continue to lean towards negative outcomes.
- Global growth is expected at 3.0% in 2023, slowing to 2.7% in 2024, driven by Asia despite China’s weak recovery.
- Tightening monetary policy led to rapid increases in policy rates, and corporate, and mortgage loan interest rates.
- Expected responses: continued restrictive monetary policy, fiscal preparation, and reduced trade restrictions for productivity and growth.
- Conservative Party Conference announced HS2 cancellation, new infrastructure projects in West Midlands, Advanced British Standard, and a smoking ban.
- Midlands to receive £9.6bn in transport projects (some have already been announced), but HS2 cancellation, especially Birmingham to Manchester leg, deemed significant loss as had the highest impact.
- Halifax House Price Index shows a 4.7% drop since Sep 2022, averaging £278,601, with a sixth consecutive monthly fall. Nationwide reports a 5.3% YoY drop, average house price £257,808.
- Cost of living (90%), NHS (86%), economy (72%), climate change (62%), and housing (58%) are top concerns. 54% of adults reported increased living costs; and SAP of electricity rose by 39% weekly in 2023.
Business Activity and Optimism
- West Midlands (WM) Business Activity Index dropped from 51.3 to 50.0 in August 2023, ending six months of growth.
- UK Business Activity Index fell from 50.8 to 48.6 in the same period.
- WM ranked fourth highest for business activity among UK regions in August 2023.
- WM Future Business Activity Index rose to 78.5, the highest since January 2022, driven by new business expectations and internal efficiency.
Trade and Exports
- WM goods exports rose by £6.9bn (+26.1%) to £33.4bn in the year ending Q2 2023, the highest growth among UK regions. Imports increased by £3.2bn (+8.1%) to £42.5bn in the same period.
- WM faced a trade deficit of £9.1bn in the year ending Q2 2023.
- Machinery & transport exports accounted for 69.4% (£23.2bn) of total exports; 62.9% (£14.6bn) were non-EU exports.
- WM exports to the EU were £14.5bn, a 13.0% increase since year ending Q2 2022.
- Largest concerns: 72% of businesses sourced goods without disruption, 63% had concerns for October 2023, 5% were affected by industrial action, and 10% faced worker shortages.
- 84% of businesses weren’t using AI technologies, and 81% had no plans for AI adoption in the next three months.
Business Enterprises and Sectors
- In March 2023, the West Midlands Combined Authority (WMCA) had 92,335 enterprises, a 1.2% decrease from March 2022.
- Business, professional & financial services sectors constituted 25.8% (26,310) of businesses.
- WMCA had sectors above or matching UK proportions in advanced manufacturing, life sciences & healthcare, logistics & transport technologies, retail, and the public sector including education.
Business support
- Limited quality evaluations and funding instability in business support hinder impact assessments; fragmented investments result in inadequate assessments.
- Business support is demand-driven, making randomised controlled trials (RCT) challenging; an alternative ‘6 steps approach’ is recommended for evaluations.
- The shift from the European Regional Development Fund (ERDF) to the UK Shared Prosperity Fund (UKSPF) offers opportunities for realignment and improved evaluation strategies.
- MetroDynamics’ recommendations include a stable account management infrastructure, core diagnostic tool, shared knowledge hub, central CRM, standardized core products, thematic premium products, business guides, and awareness campaigns.
- While strategic investment in high-tech sectors is popular, research shows growth varies across sectors. Government focus on large-scale tech negatively impacts UK SMEs, especially micro-enterprises, despite their significant contribution to urban economic growth.
West Midlands Innovation Partnership (WMIP) Evaluation
- City-REDI assesses the West Midlands Innovation Partnership positively, stating it achieved objectives through demand-led innovation support.
- WMIP’s objectives included integrating innovation support for businesses, enhancing regional expertise, facilitating national innovation funding access, and communicating innovation opportunities.
- WMIP followed five pillars: Networks and linkages, Investment programs, Talent, Intelligence, and Culture.
- WMIP demonstrated excellent value for money, generating £29,109,177 in cumulative net additional GVA effects over three years.
Innovation Accelerators
- Existing Innovation Accelerators (IAs) face challenges in balancing GVA growth and inclusive growth, necessitating alignment of funding and initiatives. The current IA model targets high-tech innovation, lacking a demand-side approach for SME scaling and upskilling.
- £33 million per IA and the short 3-year allocation period hinder significant growth impacts.
- IAPs can enhance collaboration, prioritize investments, and build place leadership and soft infrastructure.
- Developed city regions with mature governance would benefit immediately from IA designation and funding.
Alternative Approaches to Economic Development
- Interest in alternative approaches is often driven by crises but hindered by patchwork funding and conflicting pressures.
- Despite challenges, local action is crucial; integration across scales and data sources is vital to measure local initiatives’ impact and align them with broader goals.
- As exemplified by Birmingham’s Neighbourhood Doughnut Portrait, collaboration with community groups can guide the practical implementation of alternative development strategies.
Role of Cities
- Cities play a pivotal environmental role, impacting sustainability and offering essential infrastructure for diverse urban living.
- Urban areas foster innovation, research, and development through proximity to universities, research institutions, and industry clusters.
- Cities can have unique governance structures and tailored policies, although UK cities lack consistent devolution and fiscal accountability.
Future Hosting of Mega Events – Lessons
- Planning for displacement and regional absorption of event-related activities is essential.
- Encouraging local supply chains benefits regional businesses, and investing in employability and skills programs enables local job opportunities.
- Developing the host city’s brand sustains long-term income streams and future opportunities.
Long-Term Effects of COVID on Young People
- EU and UK policies targeting young people’s employment and skills should prioritise mental well-being.
- The pandemic’s negative impact on mental health, especially in adolescents, students, and unemployed youth, might hinder their future employment and training opportunities if unaddressed.
Impacts of E-scooters
- Cities need to incentivise e-scooter use by focusing on substituting car journeys to avoid a decline in walking, ensuring public health. Legal ambiguity regarding e-scooters requires clear legislation, and research on interventions like protective gear is crucial to reduce healthcare costs.
Employment and Claimant Counts (Three Months Ending July 2023)
- WM employment rate: 75.1%, a 0.4pp decrease from April 2023 and 0.2pp lower than the previous year. UK rate: 75.5%, a 0.5pp decrease from the previous quarter but a 0.1pp increase from the previous year.
- WM unemployment rate: 5.0%, a 0.1pp increase and 0.4pp higher than the previous year. UK rate: 4.3%, 0.5pp and 0.7pp higher (than the previous year).
- WM economic inactivity rate: 20.8%, a 0.3pp (on the last qtr) but a 0.1pp decrease (previous year). UK rate: 21.1%, a 0.1pp increase from the prior quarter but a 0.6pp decrease from the previous year.
- WMCA area had 124,780 claimants in August 2023, a 0.2% increase (275 claimants) from July 2023, matching the UK growth rate. Since March 2020, claimants increased by 25.7% (+25,480) in WMCA, compared to the UK’s 22.0% rise.
- In August 2023, there were 23,590 youth claimants in WMCA, a 1.9% increase (+440) from July 2023, aligning with the UK growth rate. Since March 2020, youth claimants rose by 23.2% (+4,435) in WMCA, while the UK saw a 14.1% increase.
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This blog was written by Rebecca Riley, Associate Professor for Enterprise, Engagement and Impact, City-REDI / WMREDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.