West Midlands Economic Impact Monitor – 26 January 2024

A slow Christmas for retailers hints at the continuing issues with sluggish growth seen globally, with forecasts struggling to revise upwards. A continuing bumpy ride for China is having global ramifications. Food prices are rising, as are those goods most affected by Brexit. Future prospects for the West Midlands seem mixed.

Growth outlook

The World Bank is forecasting that global growth will slow to 2.4% in 2024.
Emerging Markets and Developing Economies (EMDEs) are set to see a noticeably lower level of output than pre-pandemic levels, alongside slow growth per capita.
Growth in advanced economies as a whole and in China is projected to slow in 2024 to well below the 2010-19 average pace.
Recovery from the 2020 pandemic-induced recession remains subdued.
The recovery in global trade in 2021-24 is projected to be the weakest following a global recession in the past half-century.
The EY ITEM Club’s new Winter Forecast expects the UK economy to grow 0.9% in 2024, up from the 0.7% growth projected in October’s Autumn Forecast. GDP growth expectations for 2025 have also been upgraded from 1.7% to 1.8%, although 2023 growth predictions have been downgraded from 0.6% to 0.3%. Inflation is expected to fall faster than previously expected, reaching the Bank of England’s 2% target by May and averaging 2.4% in 2024.
Economic forecasts from the National Institute of Economic and Social Research (NIESR) estimate that GDP flatlined in the fourth quarter of 2023. GDP is forecast to grow by 0.2 per cent in the first quarter of 2024. These forecasts remain broadly consistent with the longer-term trend of low, but stable economic growth in the United Kingdom.

Price increases

The annual Consumer price inflation (CPI) rate in December for food and non-alcoholic beverages was 8%.
The London School of Economics (LSE) found that between December 2019 and March 2023, food prices rose by around 25%. In the absence of Brexit, this figure would have been 8 percentage points (i.e. one-third) lower.
Whilst there were many macroeconomic shocks in this period (e.g. Covid and the invasion of Ukraine), the LSE found that food products which were more exposed to Brexit saw prices increase at a faster rate than those which were less exposed.
Following the implementation of the Trade and Cooperation Agreement (TCA) between the United Kingdom (UK) and the European Union (EU), the UK has repeatedly delayed imposing checks on EU imports, whereas the EU implemented the rules, tariffs and regulations under the TCA. As a result, three years on from the agreement 90% of businesses surveyed by Make UK are still reporting challenges exporting to the EU, with customs and border delays proving the largest barrier for 64% of businesses.
Retail sales volumes are estimated to have fallen by 3.2% in December 2023, from a rise of 1.4% in November 2023 (revised up from an increase of 1.3%); December’s decrease was the largest monthly fall since January 2021, when Covid-19 restrictions affected sales.
Automotive fuel sales volumes fell by 1.9% in December 2023, following a rise of 0.8% in November 2023.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2% in the 12 months to December 2023, the same rate as in November.
Around half of adults (52%) reported their cost of living had increased over the last month; this proportion has gradually decreased since April 2023. The most common reasons continue to be rises in the price of their food shopping (90%) or the price of their gas and electricity bills (85%).

Vacancies

The total number of online job adverts on 12 January 2024 increased by 3% when compared with the previous week; this number was 16% below the level in the equivalent period of 2023.

Trading

More than a quarter (29%) of trading businesses experienced decreased turnover in December 2023 compared with the previous month; this is an increase of 6 percentage points from November 2023.
In December 2023, 69% of trading businesses reported that they were able to get the materials, goods or services they needed from within the UK, up 2 percentage points from November 2023.
The percentage of businesses with 10 or more employees that reported global supply chain disruption in December 2023 remained broadly stable from November 2023 at around 5%.

House prices

Average UK house prices decreased by 2.1% in the 12 months to November 2023 (provisional estimate), down from a decrease of 1.3% (revised estimate) in the 12 months to October 2023.
The average UK house price was £285,000 in November 2023, which was £6,000 lower than 12 months earlier.

Midlands Engine area headlines

The latest figures from the Midlands Engine Observatory State of the Region show that in 2021 the Midlands’ total GVA was £252.6bn, an increase of 7.4% since 2020. Despite the latest growth, forecasts predict low economic growth for all devolved nations and English regions, with the Midlands not reverting to pre-pandemic levels of GVA until 2025.
The Midlands had a productivity gap of £86.3bn in 2021. The productivity gap has increased over the year by nearly £4.0bn (+4.8%).
Economic inactivity is an issue across the Midlands, with over 20% of the working-age population inactive.

Business activity

The West Midlands Business Activity Index decreased from 50.7 in October 2023 to 50.6 in November 2023. The latest reading still indicated a slight increase in output, and this was due to rising intakes of new work and better demand trends encouraging growth.
The UK Business Activity Index increased from 48.7 in October 2023 to 50.7 in November 2023.
Out of the twelve UK regions, the West Midlands was ranked the second highest for business activity in November 2023.

Exports

In the year ending Q3 2023 the West Midlands region exported £34.1bn worth of goods and imported £42.7bn. This represents a trade in goods deficit of £8.5bn: a decrease from the trade deficit in the year ending Q3 2022 which was £13.0bn.
By Country Group the highest value of goods exports from the West Midlands region was to the EU at £14.7bn, accounting for 43.1% of the total.
The highest value of imports to the West Midlands region was from the EU at £25.7bn, which accounted for 60.2% of the total.
4% of responding West Midlands businesses reported exporting within the last 12 months. While 48.8% of West Midlands businesses reported to have never exported and do not have the goods or services suitable for export.

Economic activity and employment rates

Overall, for the West Midlands Combined Authority (WMCA) area, the economic activity rate was 75.3% in the year ending September 2023: an increase of 1.4 percentage points (pp) since the year ending September 2022. The UK economic activity rate was 78.7% and increased at a slower rate of 0.5pp.
The WMCA area employment rate was 70.3% in the year ending September 2023. This was an increase of 1.4pp since the year ending September 2022. The UK employment rate increased by 0.3pp to 75.7%.
The WMCA area economic inactivity rate was 24.7% in the year ending September 2023, a decrease of 1.4pp since the year ending September 2022. The UK’s economic inactivity rate decreased by 0.5pp to 21.3%.
There were 24,110 youth claimants in the WMCA area in December 2023. Since November 2023, there has been an increase of 0.9% (+215) of youth claimants while the UK increased by 0.1%.

Higher education fees and international students

In 2021 higher education providers in the West Midlands received tuition fee contributions from non-EU students of £551.9 million, while EU students’ fee contributions amounted to a comparatively modest £58.9 million.
The impact of Brexit is evident on EU students’ fees, with income from EU students declining from £102 million in 2020 to only £58 million in 2021.
ONS data from 2021, provides insights into the employment status of international graduates in the UK. It shows that 32.6% of international graduates were employed by UK-based employers, while 57% were economically inactive due to pursuing higher education or voluntary work. This data highlights the valuable role of international students in filling employment gaps in the UK.
The Graduate Route visa, introduced in July 2023, allows international students to stay in the UK for employment purposes after completing their studies. This scheme has seen substantial uptake, with 98,394 individuals granted this visa.
Graduates’ income tax contributions are substantial, with an average of approximately £36,000 per EU-domiciled graduate and £34,000 per non-EU-domiciled graduate over their first decade of employment in the UK.
The total estimated NI employee contributions are £716 million for EU-domiciled graduates and £1,043 million for non-EU-domiciled graduates. Additionally, NI employer contributions generated £266 million from EU-domiciled graduates and £449 million from non-EU-domiciled graduates.
VAT revenues are another source of income. The 2016/2017 cohort of international students contributed £592 million in VAT payments, with £220 million from EU-domiciled graduates and £372 million from non-EU graduates.

Insolvency risk

6% of businesses are at medium risk of becoming insolvent in Solihull, 9% in Dudley and 8.71% in Birmingham (as defined by Red Flag Alert 3 flag system, these businesses have one red flag rather than 3 red flags which are at the highest risk of closure in the next few weeks).

Worker shortages

6% of responding West Midlands businesses reported experiencing a shortage of workers.
0% of West Midlands businesses reported that the shortage of workers had caused employees to work increased hours.

Read the West Midlands Economic Impact Monitor in full.

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.