West Midlands Economic Impact Monitor – 23 February 2024

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The UK economy entered a recession at the end of last year. Meanwhile at the global scale growth has been revised upwards to just over 3% in 2024 and 2025, but below the historical norm that is closer to 4%. Regionally, business confidence is increasing.

 Global trends
  • The IMF has released its World Economic Outlook report for January 2024. Global growth is projected at 3.1% in 2024 and 3.2% in 2025, with the 2024 forecast 0.2 percentage point higher than that in the October 2023 World Economic Outlook (WEO) on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China. However, this is below the historical (2000–19) average of 3.8%, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth.
  • Inflation is falling faster than expected in most regions, amid unwinding supply-side issues and restrictive monetary policy. Global headline inflation is expected to fall to 5.8% in 2024 and to 4.4% in 2025, with the 2025 forecast revised down.
  • The UK slipped into a recession at the end of last year after a poor performance from the dominant service sector pushed the economy into contraction, new figures show. Office for National Statistics (ONS) data has revealed that GDP is estimated to have fallen by 0.3% in the three months to December 2023, compared with the three months to September 2023. On a quarterly basis, this gives two consecutive falls in GDP.
  • Services output fell by 0.1% in December 2023, and in the three months to December 2023 services output fell by 0.2%. Production output grew by 0.6% in December 2023, but in the three months to December 2023 production output fell by 1.0%. Construction output fell by 0.5% in December 2023, and in the three months to December 2023 construction output fell by 1.3%.
  • Winter 2024 Economic Forecasts from the National Institute of Economic and Social Research (NIESR) estimate that GDP growth will likely remain sluggish into the medium term and that the United Kingdom was in recession in the second half of 2023 while GDP grew by only 0.3% in 2023. NISER expect GDP to grow by 0.9% in 2024 and at a similar rate throughout the rest of the forecast. As a result, living standards – as measured by real household disposable income – are expected to remain below pre-pandemic levels until 2027-28. 
Regional business confidence and business activity
  • ICAEW has released its findings for the Business Confidence Monitor for the West Midlands for 2023 Q4. Business sentiment improved slightly and at +11.4 in Q4 2023 confidence is higher than elsewhere in the UK.
  • The latest NatWest Purchasing Managers Index (PMI) reports West Midlands business activity and sales expanded at their quickest rates since May 2023. The headline Business Activity Index rose from 51.5 in December to 53.1 in January 2024. Growth was linked to the rising intakes of new orders and demand resilience. The UK Business Activity increased from 52.1 in December 2023 to 52.9 in January 2024.
  • The West Midlands Future Business Activity Index increased from 77.2 in December 2023 to 78.1 in January 2024. Optimism from firms was linked to forecasts of demand growth, new project onboarding and publicity. Out of the twelve UK regions and nations, the West Midlands was the highest for the Future Business Activity Index in January 2024. The South East was the second highest at 75.7 and Scotland was the lowest at 60.9.
Business births and deaths
  • The number of business births in the WMCA area in Q4 2023 was 3,375. This figure was 0.1% (-5) lower than the number of business births in Q4 2022, this is in contrast to the UK growth of 2.6%. There was a mixed picture across the WMCA area as Coventry, Sandwell, Solihull and Wolverhampton increased, meaning Birmingham, Dudley and Walsall decreased.
  • Quarter-on-quarter analysis (between Q3 2023 and Q4 2023) showed a decrease of 5.2% (-185) for the WMCA area, and the UK decreased by 9.4%. Birmingham was the only local authority in the WMCA to increase (+0.3%).
  • The number of business deaths in the WMCA area in Q4 2023 was 3,630. This figure was 0.1% (+5) higher than the number of business deaths in Q4 2022, the UK fell by 9.8%.
  • The latest data shows that in the WMCA area business deaths are higher than business births.
  • The Joseph Rowntree Foundation has released its latest Poverty Report. More than 1 in 5 people in the UK (22%) were in poverty in 2021/22 – 14.4 million people. This included 8.1 million (or around 2 in 10) working-age adults, 4.2 million (or nearly 3 in 10) children, and 2.1 million (or around 1 in 6) pensioners. 6 million people – or 4 in 10 people in poverty – were in ‘very deep’ poverty, with an income far below the standard poverty line.
  • Between 2019/20 and 2021/22, the average person in poverty had an income 29% below the poverty line, with the gap up from 23% between 1994/95 and 1996/97. 
Cost of living
  • In the ONS’s latest release of public opinions and social trends figures just under half (46%) of adults said their cost of living had increased over the last month, this proportion has gradually decreased since April 2023 (76% in the period 22 March to 2 April 2023); just over half (53%) said their cost of living had remained the same over the last month, with 1% saying it had decreased.
  • Among those who said that their cost of living had increased, the most common reasons that continued to rise were the price of their food shopping (92%), the price of their gas and electricity bills (78%) or their fuel (47%).
Regional labour market
  • For the three months ending December 2023, the West Midlands region employment rate (aged 16- 64 years) was 74.4%. Since the three months ending September 2023, the employment rate decreased by 0.4 percentage points (pp). The UK employment rate was 75.0%, an increase of 0.2pp when compared to the previous quarter.
  • For the three months ending December 2023, the West Midlands region unemployment rate (aged 16 years and over) was 3.8%, which has increased by 0.1pp since the previous quarter but a decrease of 0.7pp from the previous year. The UK unemployment rate was 3.8%, a decrease of 0.2pp from the previous quarter and remained the same when compared to the previous year.
  • For the three months ending December 2023, the West Midlands Region economic inactivity rate (aged 16- 64 years) was 22.5%, an increase of 0.2pp from the previous quarter and an increase of 0.3pp when compared to the previous year. The UK economic inactivity rate was 21.9%, remaining the same level when compared to the previous quarter but a 0.2pp increase from the previous year.
  • There were 124,575 claimants in the WMCA area in January 2024. Since December 2023, there has been an increase of 1.5% (+1,840) claimants in the WMCA area, while the UK increased by 1.7%.
  • When compared to January 2023, claimants have increased by 4.3% (+5,105) in the WMCA area, with the UK increasing by 4.5% over the same period.
  • When compared to March 2020, claimants have increased by 25.5% (+25,275) in the WMCA area, with the UK increasing by 23.8%. 
  • The number of workers who mainly work at home in the UK has increased by 5.5 million between 2019-2023. This is almost entirely down to employees taking up this new type of flexible working on a large scale (as opposed to the self-employed of whom a large proportion already mainly worked at home before the pandemic). Amongst employees, the proportion of those who mainly work at home was 3% before the pandemic (660,000 employees) compared to 22% in 2023 (5.9 million employees).
  • The increase in homeworking since the Covid-19 pandemic has exacerbated pre-existing occupational differences in who has the opportunity to work at home. However, while the level of homeworking has dramatically changed, its patterns and inequalities by and large have remained the same as before the pandemic.
  • In 2023 the West Midlands accounted for 7.7% of the UK’s homeworking employees but 9.0% of the UK’s employee workforce.
R&D data and current challenges
  • The UK government’s 2017 Industrial Strategy committed to spending 2.4% of GDP on Research and Development (R&D) by 2027. Following the Levelling up White Paper, the government has embarked on significant initiatives to boost regional R&D, recognising its crucial role in driving economic growth and addressing societal challenges across the country. Having reliable sets of R&D data is imperative.
  • The ONS has significantly changed its R&D statistics in recent years. Existing data is inadequate for assessing the landscape of R&D activity and its impact across regions and places, and for responding to their unique opportunities and needs.
  • In 2022, the ONS made a huge change in the way “Business and Enterprise R&D” (BERD) expenditure is measured. The changes resulted in a break in the data time series from 2018 onwards. Multiple regions were also aggregated into combined regions, such as the East Midlands, West Midlands and South West being reported as one, so making trend analysis more complicated and making regional insights.
  • A further challenge with public R&D data, albeit one that the ONS has made recent improvements on, is a lack of transparency on the actual (final) location of public-funded R&D spending and activity since funding awards may be subcontracted to other organisations that may be in other regions.

West Midlands Economic Impact Monitor 23 Feb 24.

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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