West Midlands Economic Impact Monitor – 20 January 2023

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This week, we report on the public opinions and social trends survey and the most reported issues continue to be the cost of living (92%), the NHS (85%), the economy (75%), and climate change and the environment (58%). This aligns with the WEF global risks report, and the issues businesses are facing. The Commonwealth Games interim report shows the GVA impact of at least £200.9 million of net GVA in Birmingham, £396.9 million of net GVA in the West Midlands (including Birmingham), and approximately £764.7 million of net GVA to the UK economy (including the West Midlands and Birmingham) and over 15,000 jobs into the UK economy, 25% in Birmingham.

Global Risks
  • Over the next 2 years, the most severe global risk is expected to be the cost-of-living crisis, forecasted to peak in the short run.
  • Over the next 10 years climate change-related risks account for 6 out of the 10 top risks.
  • The economic aftereffects of COVID-19 and the war in Ukraine have ushered in skyrocketing inflation, a rapid normalization of monetary policies and started a low-growth, low-investment era.
  • Geopolitical fragmentation will drive geoeconomic warfare and heighten the risk of multi-domain conflicts.
  • Technology will exacerbate inequalities while risks from cybersecurity will remain a constant concern.
Business activity and economic outlook
  • UK battery start-up Britishvolt has collapsed into administration, with the majority of its 232 staff made redundant with immediate effect.
  • Dec 2022, approximately 1 in 6 (16%) businesses had been affected as a result of industrial action; 28% of those businesses reported they were unable to obtain necessary goods for their business and 23% were unable to operate fully.
  • Feb 2023, 1 in 5 (20%) businesses reported energy prices were their main concern, followed by inflation of goods and services prices (16%) and falling demand for goods and services (14%).
  • Jan 2023, nearly 1 in 3 (28%) of businesses with 10 or more employees reported they were experiencing a shortage of workers; more than half (56%) of those businesses reported employees were working increased hours as a result of these shortages and 40% reported they were unable to meet demands
  • The West Midlands Business Activity Index slightly rose from 48.8 in November 2022 to 48.9 in December 2022 – although, remained below the 50-growth mark for the fifth consecutive month. The UK Business Activity Index increased from 48.2 in November 2022 to 49.0 in December 2022. Out of the 12 UK regions, the West Midlands was the fourth highest for business activity in December 2022.
  • The West Midlands Future Business Activity Index increased from 64.7 in November 2022 to 65.3 in December 2022. West Midlands firms that were optimistic for the next 12 months reported new product releases, projects in the pipeline and marketing efforts. Optimism was restricted due to recession risks, a challenging economic climate and weak underlying demand. Out of the 12 UK regions, the West Midlands was the third highest for Future Business Activity in December 2022.
  • Some reports suggest West Midlands businesses expect 2023 to be more successful than 2022. For example, data from Lloyds Bank shows that 62% of West Midlands firms said they are confident they would have greater success in the coming 12 months, compared to the past year, while 28% were not confident about being more successful and 6% expected their business to perform at the same level. Meanwhile, 51% are expecting a higher turnover than in 2022.
  • Soaring energy costs remain the biggest concern for firms, especially SMEs. Some businesses face fourfold increases that will be hardest felt once the government support scheme ends in March. Those on fixed rates are preparing to mitigate increases in bills by making cuts or looking to invest in energy-saving measures. 
Labour market
  • Meta, Amazon and Microsoft, 3 of the largest if not the largest, tech companies in the world have all announced redundancies. Meta announced 11,000 redundancies, Amazon 18,000 and Microsoft 10,000 across their global workforces.
  • Overall, for the WMCA (3 LEP) area, the economic activity rate decreased between the year ending September 2021 and the year ending September 2022, by 0.4pp to 76.7%. The UK economic activity rate was 78.4% and when compared to the year ending September 2021 this had increased by 0.1pp.
  • The WMCA (3 LEP) area employment rate remained the same level since the year ending September 2021 at 72.3%; the UK rate increased by 1.0pp to 75.5%.
  • The WMCA (3 LEP) economic inactivity rate increased since the year ending September 2021 by 0.4pp to 23.3% in the year ending September 2022. Over the same period, the UK decreased by 0.1pp to 21.6%.
  • Since the year ending September 2021, the WMCA (3 LEP) area-modelled unemployment rate decreased by 0.5pp to 5.5%. England decreased by 1.2pp to 3.7pp in the year ending September 2022.
  • There were 145,210 claimants in the WMCA (3 LEP) area in December 2022. Since November 2022, there has been an increase of 1.8% (+2,600) claimants in the WMCA (3 LEP) area, while the UK increased by 1.9%. When compared to March 2020 (pre-pandemic figures), the number of claimants has increased by 23.5% (+27,620) in the WMCA (3 LEP) area, with the UK increasing by 20.8% over the same period. Overall, for the WMCA (3 LEP) the number of claimants as a proportion of residents aged 16 – 64 years old was 5.5% compared to 3.7% for the UK in December 2022.
  • Reflecting national trends, the number of job postings across the WMCA 3 LEP area decreased by 7%; down by 9,058 month-on-month to 124,631. Sandwell (-15%), North Warwickshire (-14%), Rugby (-13%) and Warwick (-11%) all recorded double-digit reductions in the number of job postings.
Economic and social indicators
  • The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to December 2022, down from 9.3% in November.
  • Birmingham is expected to see a decline in output in Q1 2023, however by the end of the year, it is expected to be in 3rd place for economic growth on their city tracker. With a 1.1% rise in annual GVA by Q4 2023, up from the 0.3% growth in Q4 2022.
  • The System Average Price (SAP) of gas decreased by 8% in the week to 8th January 2023 (from the previous week), it was 10% lower than the equivalent level in 2022 which has been linked to lower demand due to unseasonably mild weather across the UK and large parts of Europe. However, when compared to the pre-Covid-19 baseline, SAP was 565% higher.
  • 6% of West Midlands businesses reported experiencing global supply chain disruption in December 2022. In contrast, 53.8% reported none.
  • 7% of West Midlands businesses expect the main concern for business in February 2023 will be energy prices.
  • 4% of West Midlands businesses reported currently experiencing a shortage of workers. While 56.7% of West Midlands businesses reported not currently experiencing a shortage of workers. 58.2% of West Midlands businesses reported that due to worker shortages that employees had to work more hours.
  • 5% of West Midlands businesses reported being affected by industrial action in December 2022.
  • The four main issues facing people across the UK are:
    • the cost of living (92%),
    • NHS (85%),
    • economy (75%)
    • climate change & the environment (58%).
Addressing regional inequalities
  • Research on four city regions internationally that have made progress in reducing regional inequalities – Cleveland (USA), Fukuoka (Japan), Leipzig (Germany) and Nantes (France) – emphasises the importance of shared political will and partnerships, clear strategy and vision, investing in the long-term, local knowledge of the strengths and weaknesses that drive local economies, strong monitoring and evaluation systems, adapting national frameworks to address local needs, diversifying beyond economic and business growth into cultural/spatial development, the role of key players as enablers of growth, and adequate and responsive
  • In the UK context, the research raises questions over the frequent short-term nature of funding and points to the need to ensure greater clarity over what recently announced expanded devolution powers will mean in practice.
Student Knowledge Exchange
  • Research from Keele University and the University of Birmingham shows that a flexible, supportive, virtual and online approach to internships and enterprise activity removes barriers for under-represented students (defined as a mature student, from an area of low higher education participation, from an ethnic minority, who had a disability, were the first in the family to attend university, or were a parent) to access high-quality internship and enterprise opportunities.
  • This indicates a positive impact on students, staff, businesses and places.
Universities and support for the creative industries
  • Despite their ongoing economic growth and encouraging post-pandemic recovery, the screen sector across the UK is suffering from an ongoing issue with skills gaps and shortages.
  • Increasingly, universities are expected to help address this skills shortage and provide a variety of additional benefits to employers in their region including; attracting and training a skilled workforce, acting as an innovation hub for R&D and acting as ‘anchor institutions’.
  • Research in the West Midlands and South Wales suggests that a better understanding of the interaction between industry, government and education at the regional level is required to inform policymakers on what is the right course of action to sustain growth and provide the support that is tailored to that region’s needs.
  • In Birmingham, the growth of Digbeth’s Creative Quarter looks set to continue. The relocation of BBC Midlands shows a real vote of confidence in the growth and development of the cluster, and in conjunction with the efforts of the Creative Content Hub, and Create Central the future of both public service broadcaster (PSB) and independent television production appear to be very bright indeed. Creative goods and services also possess high, instant, in the case of digital content, export potential.

Download and View a copy of the West Midlands Economic Impact Monitor

This blog was written by Anne Green, Professor of Regional Economic Development at City-REDI  / WMREDI, University of Birmingham.

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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