West Midlands Economic Impact Monitor – 18 February 2022

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This week commentary has focused on the Levelling Up White Paper, and the WMCA forecast provider Oxford Economics’ latest summary looks at the impact on UK cities and regions. Their assessment is:

“The Levelling Up White Paper contains nothing to cause us to revise our forecasts for the UK’s various nations and regions, let alone the UK as a whole. It contains many fine sentiments but little that is new or significant. We forecast that southern regions will outpace all others, 2022-30”.

Like many commentators, they highlight there is a long way to go to address the disparities in the UK.

Levelling Up

Commentary centres on a number of issues. A primary conclusion is that the solutions are too small. The White Paper sits within a set of strategies that may be coherent at a national level but are disjointed at the local level. In general, London and Whitehall have controlled the content with little local engagement. Some parts of the plans could make things worse, such as striking deals and competitive funding that is inefficient at all levels.

  • Productivity differentials would still exist even if the economy is levelled up. Research by the Centre for Cities shows that levelling up policy will fail if it sets the same goals everywhere since different places (e.g. rural areas, towns, large towns, cities, large cities) perform different roles in the economy.
  • A large number of disadvantaged areas have not been prioritised for the government’s Levelling Up Fund according to research by the Salvation Army. This reflects how the criteria used to prioritise areas focus on economic recovery and growth, improved transport connectivity, and regeneration, rather than employment and future labour market and sector trajectories.
  • Longer duration funding is essential. International research shows the importance of investing for the long-term if countries and city-regions want to reduce inter- and intra-regional inequalities.
  • London should not fear levelling up as it is likely to benefit from increased productivity among cities and regions beyond London. This “could well” reduce some of the growing pressures on the capital and/or facilitate increased investment in London
  • Given the scarcity of funding, it is vital that Levelling Up policies are knitted together and that stakeholders work together coherently rather than unnecessarily duplicating efforts or cutting across each other.
  • The Government needs to ‘join up’ its approach to innovation funding so that DfE, BEIS and DLUHC work together to ensure that Higher Education is more closely aligned to the skills and business agendas as well as those of local and combined authorities.
  • The Centre for Inequality and Levelling Up (CEILUP) has identified seven cross-cutting principles for government to support levelling up: ‘Hyper devolve’ power to local communities and areas in greatest need; Make civil society partners in levelling up; No one model of place exists to ‘level up’ to; Invest in ‘social’ as well as ‘physical’ infrastructure; Focus on real economic and social outcomes; Make long term financial commitments and monitor their progress; Avoid competition between places and people.
Economy
  • Analysts are concerned that a Russian invasion of Ukraine will push the prices of oil over $100per barrel. On Monday oil prices surged over 2% to their highest in more than seven years.
  • Covid is on the rise in China again, adding to fears that this will hit supply chains hard again and lead to greater inflationary pressure. Daily cases have surged over 20 times in the past two weeks.
  • The Bureau of Labor Statistics in the US announced this week that the Consumer Price Index had risen year on year by 7.5% in January, a level not seen since the 1980s. Britain is not far behind now at 5.5% and the eurozone hit 5.1% in January.
  • The majority of countries suffering inflationary rises in Europe are facing these as a result of supply chain issues and rapidly rising energy prices.
  • The rate of inflation is outpacing wage growth, despite job vacancies reaching a record high since the being of the pandemic. Average weekly earnings, excluding bonuses, grew at an annual pace of 3.7% in the final quarter of 2021, according to the ONS. Given that employment remains high like inflation, many expect the Bank of England will raise interest rates again this year, following a rise in interest rate to 0.5%.
  • The ONS reported that the UK economy rebounded in 2021 as Gross Domestic Product (GDP) grew by 7.5% following the easing of Covid-19 restrictions.
  • EY say that the West Midlands is expected to be one of the slowest regional economies to recover from the pandemic due to the impact of Covid-19 on the automotive and manufacturing sectors. The region’s gross value added (GVA) is forecast to be only 5.3 per cent larger in 2025 than it was in 2019. By comparison, the UK’s GVA is forecast to increase by 8.3 per cent.
  • Deloitte’s Crane Survey suggests significant growth in new construction activity – both residential and office based – in Birmingham. For Birmingham, 18 projects broke ground in 2021 in comparison to 10 in 2020, with 34 schemes currently still in development.
  • Business confidence in the West Midlands rose nine points during January to 39 per cent, according to the latest Business Barometer from Lloyd’s Bank.
  • The West Midlands Business Activity Index increased from 50.7 to 51.9 in January 2022. This indicates a quicker rate of growth, but was moderate and slower than those recorded in 2021. Firms reported the increase was due to new client wins, a recovery from the recent wave of Covid-19 and improved demand conditions.
  • Out of the twelve UK regions, the West Midlands region was third lowest for the Business Activity Index in January 2022, with London the highest at 57.3.
  • The West Midlands Future Activity Index increased from 79.8 in Dec 21 to 80.3 in Jan 22, with firms strongly optimistic that output would increase over the next twelve months. The overall level of confidence for firms was now at its highest since May 2021 and much stronger than the long-run series average.
  • Out of the twelve UK regions, the West Midlands was third-highest for the Future Business Activity Index in January 2022, with London the highest at 81.7 and Northern Ireland the lowest at 62.3.
  • 5% of responding West Midlands business reported that turnover over the last month had decreased. While 52% of West Midlands businesses reported turnover had not been affected and approximately 11.5% reported turnover had increased. 46.4% of responding West Midlands businesses reported that Covid-19 was the main reason for the change in the business turnover.
  • 2% of responding West Midlands businesses reported “exporting as normal” over the last month. 20.2% of West Midlands businesses reported “exporting, but less than normal”. 1.4% reported “exporting more than normal” and less than 1.0% reported they “had not been able to export in the last two weeks”.
  • 0% of responding West Midlands businesses reported they had received a government-backed loan or finance agreement during the Covid-19 pandemic.
  • 3% of West Midlands businesses reported they were using or intending to use increased homeworking as a permanent business model going forward. Of these businesses, the highest response as to why they were using or intending to increase homeworking at 81.8% was due to “improved wellbeing”.
  • Concerns among SMEs continue over proposed tax rises, rampant inflation caused by supply chain disruption, labour market shortages and soaring energy prices. There are calls for the Government to take swift action to reduce the pressures businesses are currently facing and to support business confidence as we emerge from the pandemic by delaying the rise in National Insurance; maintaining lower levels of VAT; offering financial support for those suffering from huge energy bills; continuing reform of the business rates system.
Employment
  • For the three months ending in December 2021, key indicators for the West Midlands Region:
    • employment rate (aged 16 – 64 years) was 75%. Since the three months ending September 2021, the employment rate saw an increase of 0.8pp.
    • unemployment rate (aged 16 years and over) was 4.9%, which has increased by 0.1pp since the previous quarter but a decrease of 1.4pp from the previous year.
    • economic inactivity rate (aged 16 – 64 years) was 21.0% – a decrease of 0.8pp from previous quarter and a decrease of 0.6pp when compared to the previous year.
  • There were 160,440 claimants in the WMCA (3 LEP) area in January 2022. Since December 2021 there has been an increase of 0.1% (+160) claimants in the WMCA (3 LEP) area, while the UK decreased by 0.2%. When compared to January 2021, the number of claimants has decreased by 22.4% (-46,260) in the WMCA (3 LEP) area, with the UK decreasing by 29.2%. When compared to March 2020 (pre-pandemic figures), the number of claimants has increased by 36.4% (+42,850) in the WMCA (3 LEP) area, with the UK increasing by 42.9%.
  • There were 26,635 youth claimants in the WMCA (3 LEP) area in January 2022. Since December 2021, there was a decrease of 1.7% (-460) youth claimants in the WMCA (3 LEP) area, below the UK decrease of 2.3%. When compared to January 2021, the number of youth claimants has decreased by 34.3% (-13,905) in the WMCA (3 LEP) area, with the UK decreasing by 42.0%. When compared to March 2020 (pre-pandemic figures), the number of youth claimants has increased by 18.0% (+4,055) in the WMCA (3 LEP) area, with the UK increasing by 19.0%.
  • The West Midlands online job adverts increased by 7.5 percentage points (the second highest increase of all regions) and on the 4th February 2022 total, online job adverts were at 157.8% of their average level in February 2020.
Brexit and Covid-19 Summary Impacts
  • An analysis published by the Office for Budget Responsibility (OBR) (October 2021) suggests an overall decline in UK goods trade of around 15% is associated with the implementation of the Trade and Cooperation Agreement (TCA) with the EU at the end of the transition period and the UK’s departure from the EU customs union and single market.
  • Economic inactivity rates have risen over the course of the pandemic. This is a reversal of the long-term trend since the early 1970s. In recent months, increases have been driven by the 50-64 age group (ONS, January 2022). There has also been a marked decline in self-employment (not reflected in the pay-rolled employee figures).
  • Figures collated by the Centre for Retail Research for 2020-21 suggest that more than a quarter of a million jobs and over 25,000 stores have been lost in retail since the start of the pandemic. Here we may be seeing evidence of one of the longer-term legacies of behavioural change associated with the pandemic.
  • It is hard to overstate the potential significance of this behavioural change for many aspects of economic life. Fewer people commuting to city workplaces has obvious consequences for demand for city-centre retail. It also has major implications for transport planning and service provision. Also affected is the nature of and demand for commercial property in cities. This in turn may have consequences for the property portfolios of investors – not the least of these being our pension funds
  • Labour supply problems are now being widely reported by many businesses. This is a general problem, but also one that is particularly evident in sectors that were reliant on EU migrant labour prior to Brexit.
  • The big story of late 2021 has been rising inflation, falling real wages and prospects of a cost-of-living crisis for 2022. This is a story that has been building for some time. Business surveys by organisations including the BCC, CBI, FSB and Make UK have been consistent throughout 2021 in reporting rising input costs as a major concern.

Download and view a copy of the West Midlands Economic Monitor


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 it here.


This blog was written by Anne Green, Professor of Regional Economic Development 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, WMREDI or the University of Birmingham.

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