This week we see the rise of the new variant of Covid-19 which could be set to slow economic recovery down. Omicron developed in southern Africa and has now spread worldwide. New restrictions are emerging in many countries. This is leading to mass protests and in some cases violence, as citizens see this as an imposition on their civil liberties. This week the UK government has announced that in England Plan B restrictions will be reintroduced. This includes guidance to work from home, as well as face masks now having to be worn in public venues, including cinemas and theatres. As well as this, Covid passes proving vaccination or a negative test will be required at venues or events with large crowds.
A year in review – key issues:
- Fears of rising unemployment have been largely unfounded, but furlough was high and vacancies remain high. Economic participation has taken a hit – particularly through younger and older workers leaving the labour force.
- We have seen an unprecedented acceleration in R&D to respond to the pandemic.
- People who can have saved a lot and paid off record levels of debt, but people are still spending on goods, not services.
- Covid has not reshaped Britain’s economic geography in a marked way.
- The economic downturn and loss of lives caused by the pandemic should be seen as a chance to reflect and radically rethink how we live and plan our cities and communities.
- More businesses have been created and adapted and businesses are still positive about the future.
- Women have been hit hardest by the effects of the pandemic.
- There will be long term scarring due to disrupted and missing education.
- There are acute shortages of labour in hospitality, health and social care and manufacturing.
- For many, the reduction in spending in the last 12 months may have been associated with a fall in income.
- Self-employment has fallen.
- The young were hit harder: in the region, youth claimants remain high, and apprenticeship numbers have fallen.
- The capacity to deliver public health services at the local level has significant pinch points.
- The UK’s departure from the EU will continue to influence policy in the coming years. Exports have fallen in the region.
- Consumer confidence has remained at a low most of the year and is still depressed.
This week:
- The World Inequality Report 2020 release has found that last year the rich got significantly richer, whilst the poorest got poorer. Europe is the world’s most equal region, with the richest 10% taking 36% of the income share.
- The US thinks that as many as 175,000 troops could be sent to the border by early January. With both the US and Ukraine thinking that Russia is aiming to get its forces to the border by the end of January ready for escalation.
- Tensions are also rising with China and the western world. There have been a number of growing human rights concerns regarding China’s treatment of its own people. As a result, some countries are now refusing to send diplomats to the Chinese Winter Olympic Games.
- The OECD has warned in its December outlook that global recovery is set to be strong but imbalanced. Output within most OECD countries has now surpassed its late-2019 level and is converging on its pre-pandemic path; but those lower-income economies, particularly those where vaccination rates are low, are at risk of being left behind.
- The OECD is also expecting that continued supply chain bottlenecks will likely contribute to rising global inflation. The car sector is particularly feeling this impact and the price of second-hand cars is skyrocketing, due to reductions in production as a result of raw material shortages, as a result of manufacturing shutdown and bottlenecks.
- Many countries are also continuing to face growing labour market imbalances. Many people may be struggling to find jobs, but businesses in a number of sectors are now having difficulty recruiting workers – including in travel, tourism and leisure.
- PWC predicts that the UK economy could reach its pre-Covid level by the end of the year. It expects the UK economy to end the year with an annual GDP growth rate of between 7.0% and 7.1%. However, as with other forecasters, this depends on the pandemic impacts, fiscal policy, supply-side factors and inflationary pressure.
- For the West Midlands region, there was positive growth in GDP for nine sectors in 2021 Q1, with the most coming from electricity, gas, steam and air sector at 11.0%. There were contractions in West Midlands GDP in eleven sectors, including a contraction of 23.0% for accommodation and food service activities.
- A report this week by the Institute for Public Policy Research notes that trust in politicians within the UK has reached record lows. The report sets out four significant social and political gaps that must be closed to improve political trust in the UK.
- House prices in the UK have returned to double-digit growth following a slowdown in the market after stamp duty came to an end. This is due to a rise in home working, meaning buyers are looking for larger properties, prompting a ‘race for space’.
- Consumer confidence has been dented by the rising cost of living. The cost of living has surged at its fastest pace in almost ten years, hitting 4.2% in the year to October. In order to tackle rising costs, the Bank of England may be forced to increase interest rates.
- The UK has seen 2 significant storms hit over the last couple of weeks. Storms in the UK are getting increasingly worse, largely due to the growing unpredictability of the impacts of climate change. A big issue for the UK going forward will be increased flooding and its costly economic impact.
- In the year ending March 2020, the Crime Survey for England and Wales estimated 1.6 million women aged 16 to 74 years in England and Wales experienced domestic abuse; this is around 7% of the female population.
- The 2019 to 2020 Statutory Homelessness Annual Report found around 1 in 11 households in England (8.7%) who were homeless or threatened with homelessness recorded domestic abuse as the main reason.
- Work has officially started this week on the battery storage facility in the West Midlands. The aim is to reduce the region’s carbon emissions, improve air quality and support sustainable economic growth.
- Research by Shakespeare Martineau has found that 24% of leaders from the West Midlands said they will be increasing cash into wages over the next 12 months. It was found the West Midlands businesses leaders feel under pressure from London, due to growing competition.
- Loneliness amongst business leaders has doubled to 62% following the pandemic. Ambition levels have also dropped from 87% to 74%. When asked what is holding them back as leaders, 30% of respondents said a lack of time and 21% stated imposter syndrome, with more than half stating that the latter made them feel more lonely and isolated.
- 30% of respondents said they will be investing more in their business in 2022 than they had done over the past year. Business leaders said they would be most likely to invest in technology (38%), IT (36%) and entering new markets (33%), followed by product development (28%) and salaries (24%).
- Ambitious plans to regenerate towns centres across the West Midlands (Dudley and Bloxwich) have received a £46.3 million boost from the government’s flagship Towns Fund.
- Midlands Connect has signed a new collaboration agreement with the government in a bid to cement its position as the sub-national transport body for the Midlands region.
- The distribution of gross income in the West Midlands is highly unequal. 72% of people have a total income below the regional average: 7 out of 10 are below the average of £23,200 (the national average is £24,400).
- Men are wealthier than women, but at lower incomes, there is greater equality. Disparity happens at the higher income levels where 8 out of 10 of the richest people are men.
- Poorer areas have less inequality and richer areas are more unequal, skewed by very high outliers. Kenilworth and Southam, Stratford on Avon, Bromsgrove, Sutton Coldfield, Warwick and Leamington are the ‘top 5’.
- The sector which people work in is the largest of the four dimensions – source, gender, age, and industry – in terms of the contribution to inequality, with significant inequality within the sectors as well. High employment sectors contribute most to inequality.
- Those individuals, especially females, who are employed in the most unequal sectors which are crosscutting with the sectors hit hardest by Covid 19 are particularly disadvantaged in the current crisis and may particularly struggle to recover
- The road transport network has been impacted by a lack of hauliers available to transport goods between the UK and the EU and throughout the UK. There are many drivers approaching retirement age and is cited by the Road Haulage Association (RHA) estimates that up to 20,000 HGV drivers from the EU have left.
- The cost of shipping containers escalated, as well as air freight, due to fewer air transport movements, costs have increased beyond the means of many businesses. The lack of goods being imported had a detrimental effect on domestic trade as well as exports.
- Within the current Midlands Supply Chain network, multiple challenges for resilience and productivity growth were identified: establishing visibility; cross-functional engagement and integration; net-zero; skills shortages; insufficient investment; poor cash flow; early development of digital infrastructure; and the overseas supply base.
- Analysis of over one million job adverts from over 450 UK job boards suggests a large proportion of jobs currently listed across the UK are not advertised as flexible. According to the 2021 Flexible Jobs Index, notwithstanding changes in attitudes towards flexible working driven by the pandemic, and a significant jump in jobs offering flexible working between 2020 (pre-Covid) and 2021, only a quarter of jobs advertised over the period between April and August 2021 offered flexible working.
- Canvassing of over 1,000 business leaders across nine countries and 25 industry sectors by EY indicates that whilst most businesses intend to make moderate to extensive changes to their workplace models (e.g. allowing greater hybrid working), less than half have communicated these plans to their workforce. Analysis of business and individual attitudes towards the future of homeworking by the Office for National Statistics reveals that nearly a third of businesses are unsure what proportion of the workforce will be working from their usual place of work in future.
- Looking at the core cities, one reason for the shift to full-time employment in Birmingham could be that the rate at which hourly earnings have increased in the West Midlands has been much slower than that in other regions. Hourly earnings in Birmingham only increased by 10% between 2015 and 2019 (compared to 15% in Manchester and 18% in Bristol). Birmingham had the second-lowest average hourly wage in 2019 among the core cities. It is possible that many of those working full-time may aspire to work flexibly but are put off by challenges finding flexible jobs and lower hourly earnings.
- According to the Oxford Economics (OE) model, between 2010 and 2040 in the UK, total emissions will have reduced by 46% from 479,742Kt CO₂ to 260,890Kt CO₂. The model predicts a 66% decrease in industrial and commercial emissions, a 33% reduction in transport emissions and a 28% in domestic emissions, over the same period.
- Similar to the picture for the UK, the area which will see the largest reduction in emissions will be Industrial and commercial, with a 69% reduction in emissions between 2010 and 2041. The second-largest decrease will be in transport at 34%. Finally, domestic emissions will reduce by 26%.
- Based on the predictions by the OE model above, it is very unlikely that the UK will meet its net-zero target by 2050. By 2040 the OE model predicts that the UK will still be producing the 260,890Kt CO₂, having reduced emissions by 218,852Kt CO₂ since 2010. The WMCA area is also unlikely to achieve its 2041 net-zero target. By 2041 there will be 14,821Kt CO₂ in emissions according to the OE model. Whilst, this is 44% smaller than the emissions in 2010, unfortunately, it is unlikely that all this carbon will be sequestered out of the atmosphere by green and blue spaces.
- Local leadership has already been found to be leading the green industrial revolution, particularly in areas such as housing and transport. The West Midlands Combined Authority’s ‘Five Year Plan’ to decarbonise the region illustrates the ambition that exists at the local level.
Download and view a copy of the West Midlands Economic Monitor
The bi-weekly monitor brings together data and intelligence from the WMREDI partnership into one single source which can be shared and utilised in planning and responding to the challenge of the virus. This is a rapid review of the issues. It is not intended to be a comprehensive assessment but rather a practical report which places emphasis on emerging issues and the best data and intelligence we have to date.
The monitor is feeding into the regional recovery planning that can help the regional economy bounce back and quickly move forward once lockdown restrictions start to be lifted.
The work is being endorsed by political and business leaders a task force of experts are being set up through WMREDI partners to better understand the impact of the lockdown and what measures will be needed to get the economy moving again.
City-REDI / WMREDI has developed a resource page examing the impact of Coronavirus (COVID-19) on the West Midlands and the UK. It includes previous editions of the West Midlands Weekly Economic Monitor, blogs and research on the economic and social impact of COVID-19. You can view that here.
This blog was written by Rebecca Riley, Business Development Director at 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.