Infection rates from the Omicron variant remain high but are falling. On 19 January it was announced that England’s Plan B measures would end from 27 January, with use of mandatory face coverings in public places and Covid passports both discontinued, while the advice for people to work from home has been dropped with immediate effect. Concerns continue to mount about cost of living increases, with rising energy costs and other price increases, together with the forthcoming increase in National Insurance contributions.
- The UN’s 2022 World Economic Situation and Prospects (WESP) report has found that the global economic recovery is finely balanced amid new waves of Covid-19 infections, persistent labour market challenges, lingering supply-chain constraints and raising inflationary pressures. The UN projects the world economy will grow by 4% in 2022 and 3.5% in 2023.
- The World Economic Forum (WEF) has released its Global Risks Report 2022, predicting that the global economy will be 2.3% smaller by 2024 than it would have otherwise been without the pandemic.
- The International Labour Organisation (ILO) has highlighted that the extent to which economic activity has recovered has largely depended on the extent to which the virus was contained. As a result, recovery is following different patterns across geographies, economies and sectors.
National and regional outlook – labour market picture
- KPMG notes in their regional outlook for 2022 that employment is highly likely to be influenced by the persistence of current labour shortages. A high number of vacancies at present is leading to a very tight market: nationally there is now just one unemployed person per vacancy, possibly the tightest labour market in fifty years. The ONS reported that the ratio of vacancies per 100 employee jobs, had reached a record high of 4.1 in the last quarter of 2021.
- However, figures on online job adverts from Adzuna show that excluding London (where there was an increase of 6.4 percentage points), online job adverts for all other regions decreased between the 31st December 2021 and 7th January 2022. The West Midlands online job adverts decreased by 12.3 percentage points and on the 7th January 2022 total online job adverts were at 122.1% of their average level in February 2020.
- At the UK level in December 2021, there were 29.5 million payrolled employees in the UK: up 184,000 on the revised November 2021 level and up 409,000 on the pre-coronavirus February 2020 level. All regions are now above pre-coronavirus levels.
- There are now 1.1 million fewer people in the workforce than would have been expected based on pre-pandemic trends. Older people account for three fifths of the current ‘participation gap’.
Infections, self-isolation and employer responses
- According to the latest ONS infection survey data (14th January 2022), it is estimated 3,735,000 people in England had Covid-19 (95% credible interval: 3,624,800 to 3,848,700), equating to around 1 in 15 people.
- Local estimates suggest that, as of mid-January 2022, between 7% and 25% of the West Midlands workforce are currently off sick / isolating.
- Nationally, IKEA has decided to cut sick pay for unvaccinated staff who must self-isolate because of close contact with someone with Covid-19. A number of other firms have followed suit, including Next, Ocado and Morrisons.
Retail and hospitality
- In the UK in the week to the 8th January 2022, footfall in high streets decreased from 11% from the previous week and was 69% of the level seen in the equivalent week of 2019.
- Local reports from those in the hospitality and retail sectors regarding their December 2021 trading period have been mixed, with some reporting that they had done better than anticipated whilst others had done much worse.
Cost of Living crisis
- The UK is experiencing a cost of living crisis: the cost of goods and services is rising at a faster rate than average wages. Growth in regular pay was 3.8% among employees in September to November 2021, whilst inflation rose to 5.4% in December 2021 according to the ONS, the highest rate in 30 years since 1992 (7.2%). Adjusted for inflation this means that regular pay reduced by 1%.
- By spring this year, the inflation rate is predicted to have climbed to 6%, according to the Bank of England. 58% of firms surveyed by the British Chambers of Commerce are expecting to raise their prices over the next three months, the highest percentage on record. Rising inflation is also likely to place further pressure on the Bank of England to raise interest rates or cut other monetary support to the economy. Contributory factors to inflationary pressures include rising gas and oil prices, staff shortages, an increase in NI contributions in April 2022 and goods shortages.
- Survey data on social impacts of coronavirus relating to the period from 15th December 2021 to 3rd January 2022 shows that 68% of West Midlands adults reported the cost of living had increased over the last month (66% GB).
- Local intelligence reveals that firms are also concerned by high energy costs and other increasing overheads. Businesses are alarmed by the significant cost pressures they are facing in all areas, including wages and increasing costs of raw materials.
Commonwealth Games and regional and local growth
- KPMG has predicted that the West Midlands is set to see the highest rise in GDP growth, at 7.8% in 2022, largely as a result of the Commonwealth Games; on average other regions across the UK can expect around a 4% rise in GDP growth.
- House prices in Birmingham are expected to rise more than any city in the UK over the next 5 years. Property consultancy JLL has predicted that, over the next 5 years, the average value of a home will rise by 4.9% per year, with rental values rising by 2.8% per year. The agency’s latest Residential Forecast 2022-2026 report, cites the 2022 Commonwealth Games as a key driver behind the growth as it will thrust the city onto the world stage. According to the report, the average predicted rate of growth for other UK cities will be 4.7% in London and Manchester, 4.6% in Bristol, 4.2% in Leeds and 3.9% in Liverpool.
Business activity, recruitment and skills
- The West Midlands Business Activity Index decreased from 54.3 in November 2021 to 50.7 in December 2021: the third lowest out of twelve UK regions. This was the eleventh successive month for increase in output, although the rate of increase slowed to the weakest over this period. West Midlands firms reported that growth was restricted due to rising Covid-19 cases and the knock-on-effect of consumer confidence. Material and staff shortages were also reported as factors reducing output. The overall UK Business Activity Index decreased from 57.6 in November 2021 to 53.6 in December 2021.
- The West Midlands Future Activity Index increased from 75.4 in November 2021 to 79.8 in December 2021, which is a seven-month high, reflecting hopes of Covid-19 restrictions receding.
- Data from the Business Insights and Conditions Survey reveals that 74.5% of West Midlands businesses reported they had high confidence that the business will survive the next three months.
- But local intelligence reveals that firms are also concerned by high energy costs and other increasing overheads. Businesses are alarmed by the significant cost pressures they are facing in all areas, including wages and increasing costs of raw materials.
- Across a number of sectors, businesses continue to report that they are experiencing increased difficulties with staff recruitment. For example, hospitality and retail businesses say they are struggling to find suitable candidates and are also having difficulty meeting candidates’ expectations regarding pay, leading to fewer applicants. Difficulty filling vacancies also comes at a time when businesses of all sizes are seeing significant levels of staff absences due to Covid-19 and thus they are understandably concerned about how their recruitment difficulties will affect their ability to trade.
- The Covid-19 pandemic crisis has produced some unexpected consequences in terms of investment and the adoption of digital and new technologies by SMEs which will be key components of any recovery and growth strategy for the UK economy in 2022. While some saw investment in technology as a necessary step to cope with lockdown restrictions, for nearly one in five it had prompted a ‘pivot’ to completely different business models to respond to rapidly changing client and customer needs.
- Around two-thirds of West Midlands businesses reported the workforce requires extra support or training in advanced digital skills.
Trade and exports
- In the year to Q3 2021, the West Midlands region’s export value was worth £26.1bn, an increase of £611m (+2.4%) since the year ending Q3 2020. The UK increased by 3.4% to £305.1bn worth of exports in year ending Q3 2021.
- The West Midlands had a trade deficit of £7.7bn in the year ending Q3 2021. In the year ending Q3 2021, the largest value export for a Standard international trade classification (SITC) section in the West Midlands was machinery & transport at £17.6bn. This SITC section accounted for 67.5% of the total exports value; of which 60.7% (£10.7bn) were non-EU exports.
- Due to the new full custom controls from the 1st January, further delays are expected when importing goods from the EU as businesses are still adjusting and streamlining their business models to meet the new rules.
- Business leaders in the region have welcomed the launch of trade negotiations between the UK and India. A Free Trade Agreement is expected to create huge benefits for both countries and could boost the UK’s total trade by up to £28 billion a year by 2035.
- Analyses utilising the most recent available Graduate Outcomes Survey data for the academic year 2018/19 to shed light on retention/migration patterns of recent graduate workers across the UK regions reveal considerable ethnic differences in the mobility patterns among new graduate workers. On average, Bangladeshi (73.5%) and Pakistani (67.6%) graduates see the highest retention rates in the UK regions, whereas Indian (50.6%) and Chinese (51.6%) new workers are the least likely to be employed in their region of study after graduation.
- New workers who graduated from the prestigious Russell Group (RG) universities are remarkably less likely to be employed in their region of study fifteen months after completing their course (49.9%) compared to those who obtained a degree from other institutions (61.2%).
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.
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.