West Midlands Economic Impact Monitor – 26 November 2021

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Globally we are seeing the majority of economies starting to recover; however, the speed of job creation is generally lagging behind, unable to compensate for earlier employment losses; especially in developing economies. Currently, the UN is predicting the global unemployment rate will hit 6.3%, falling to 5.7% in 2022, above the pre-pandemic level of 5.4%. The issues we are seeing in the UK fit this pattern, although ongoing EU exit issues exacerbate some of these trends.

  • COP26 was held earlier this month, and a number of agreements were made. For the first time, there was an explicit plan to reduce the use of coal – which is responsible for 40% of global annual CO2 emissions. However, at the very last-minute China and India requested a change of language and would only agree to the “phase down” rather than “phase out” coal.
  • In China, the one baby rule is now causing issues as the population may not be able to comfortably support its ageing population. In the EU, Baby boomers – the largest generation ever – are reaching retirement age. There will be far more economically dependent individuals than ever before, this means the dependency ratio is set to worsen.
  • Tony Danker, CBI Director-General, has highlighted the importance of high-value sectors, high-value firms, high-level skills and higher investment as key drivers of recovery and growth. The CBI will establish a new Centre for Thriving Regions to coordinate the private sector’s commitment to levelling up. And it will crack one of the Government’s biggest questions – how to bring private-sector leadership to a place.
  • The majority of countries are set to see some of the highest rates of inflation in decades. As of October, it was reported that the inflation rate in the US had now risen to 6.2%, 1% in the Euro area, 8% on average in Latin America, with China’s official producer price index increasing 13.5% compared with October 2020. The World Economic Forum found that whilst supply chain issues are still causing more issues than expected, these will likely resolve themselves over time. However, the dramatic changes in the labour market will likely remain and pose a greater risk to rising inflation.
  • Many developing countries may have managed to keep high job losses at bay, but many are facing acute labour shortages in certain sectors. Sectors hit hard by the pandemic such as hospitality, construction and manufacturing, are most likely to be seeing these labour shortages. This is partially because the labour force has left the sector, due to instability during the pandemic and they do not plan to return.
Spending Review
  • The Spending Review last month announced that there would be an £86,000 cap on adult care fees in a lifetime, from 2023. However, reforms to the bill this week now mean that support payments from local councils will not count towards this personal limit. This will likely impact poorer households and potentially deepen the north-south divide, as poor households will proportionally pay much more. Demand for social care has dramatically increased over the duration of Covid-19; in 2019/20 across the wider West Midlands (WM) area there was a 20% increase in the number of requests for support from new clients.
  • The Office for Budget Responsibility (OBR) has predicted the UK economy will grow by 6.5% in 2021, which is a 2.4% increase from their predictions in March, but inflation looms due to soaring energy prices, labour shortages and blockages in some supply chains. As a result, inflation is expected to rise to 4.4%.
  • By the end of 2021, the OBR predicts the unemployment rate will be 4.9%. Oxford Economics (OE) has predicted a rate of 4.9% in their model for the UK. The West Midlands Combined Auth is predicted to see 6% unemployment by the end of the year. This is 1.1% higher than the expected UK predicted rate by both OBR and OE.
  • Borrowing is now predicted to be lower than the OBR’s forecast in March, and down £27 billion in 2025-26 thanks to the £33 billion improvements in the fiscal outlook before measures taken, is only partly offset by a net fiscal loosening that declines to £6 billion by that point.
  • The Living Wage Foundation has estimated that 292,627 people are earning the National Living Wage (NLW) or below, within the wider WM area. It is likely that the majority of these people will see a 59p per hour wage increase.
  • During the pandemic, Universal Credit (UC) claimants were supported through a £20 uplift. This temporary support has been removed and a change to the taper rate introduced to help those most severely impacted. Those working 16 hours per week on the NLW and receiving housing benefits will get to keep an additional £5.55 of benefits claim per week compared to the £20 uplift. Currently, 1% of the current working-age population across the 7 Met WM area is claiming UC. The Resolution Foundation has found that the poorest fifth of households across the UK will be at least £280 worse off next year than when they were receiving the £20 uplift.
  • The Institute for Fiscal Studies (IFS) is predicting that in real terms the increase in wages will only be around 3.2%. After the increases in taxes are applied the real increase in take-home pay will be 1.2% for a full-time minimum wage worker.
  • For WMCA businesses there will be a corporation tax increase from April 2023. This will rise from 19% to 25% for businesses earning over £250,000 in profit. However, it has been noted that this is still the lowest rate within the G7. The delayed implementation will likely mean that the government will not see a significant increase in revenue until the 2023-24 fiscal year.
  • One of the pre-announced policies was the end of the public sector pay freeze. This is good news for 25% of the WMCA workforce which work within the public sector as of Q2 this year.
  • £1.7bn has been awarded for local infrastructure projects; this is almost a third of the £4.8bn Levelling up Fund. Out of 105 successful bids, 9 of the bids were won by LAs within the WMCA area. Therefore, around 9% of successful bids were within the WMCA and they received 9.4% of the overall funding as well, at £160m of the £1.7bn.
  • There will potentially be a 3% increase a year for councils for the next year. However, the increase in ‘spending power’ includes council tax rises as well as funding increases. Councils will be able to increase council tax by 2% and apply an additional 1% social care levy.
  • The Government has announced an additional £4.7 billion for the core schools budget in England. This would be equivalent to £1,500 per pupil. For 2021-22 the average spend per pupil in the WMCA, between ages 3 and 16 years, is currently £5013. This will restore spending per-pupil funding to 2010 levels by 2024.
  • The Learning and Work Institute found that adult participation in Maths training courses in the WMCA area had fallen by 27% between 2011 and 2019. It was welcome news that the government has decided to invest £560m in the new Multiply scheme, aiming at improving adult numeracy, with the WMCA set to be one of the main areas of focus for the scheme.
  • The Government has committed an additional £2.6bn for school places for children with special educational needs and disabilities by 2024-2 In the WM region, 12.9% of students receive support, the third-highest of any UK region.
  • The NHS is under immense pressure, with staffing shortages, unprecedented high demand, an ageing population and a massive backlog that will take years to resolve. It is also supported by an under-funded, under-staffed social care system, the Care Quality Commission has found. The failing adult social care system only fuels growing issues in hospitals, with patients unable to leave hospital, due to capacity issues at care facilities.
  • The NHS budget is set to increase by £2.5bn a year, at a rise of 3.8% year on year on average, according to the King’s Fund. The Health Foundation found, much like the King’s Fund, that the spending would only just meet future demand and would not tackle the challenges that are already facing the sector. In order to meet rising demand, increasing the prices paid for care so that providers can raise quality and wages, plus increasing the number of care packages by 10% to make some inroads into unmet need, would require additional funding of around £7.6bn in 2022/23, rising to £9bn in 2024/25.
  • Average annual residential wages across the WMCA area, have increased by 19% from £25,225 in 2012 to £30,202 in 2020. House prices over the same period have increased by 44%, from an average of £150,335 in 2012 to £216,131 in 2020. The house price to wage ratio increased from 5.91 to 7.16 over this period. It was welcome news that the government reconfirmed its £11.5 billion investment through the Affordable Homes Programme (2021-26), of which £7.5 billion is over the SR21 period. 65% of the funding will be for homes outside London and £1.8bn to increase the housing supply.
Business performance
  • The West Midlands Business Activity Index increased from 56.3 in September 2021 to 56.9 in October 2021, the strongest increase in three months. Firms reported that capacity expansion efforts, strengthening demand and rising customer numbers helped boost business activity in October.
  • The West Midlands Future Activity Index decreased from 76.8 in September 2021 to 76.1 in October 2021. Although the level of positive sentiment decreased from September, firms remained strongly confident that business activity would expand over the next twelve months as the pandemic recedes.
  • Exports from the WM 7 Met. area decreased from just over £15.7bn in 2019 to nearly £11.9bn (split by £4.9bn to EU and £7bn to Non-EU) in 2020. Imports to the WM 7 Met. area decreased from £15.5bn in 2019 to £12.5bn (split by £7.1bn to EU and £5.4bn to Non-EU) in 2020. This means the WM 7 Met. area has changed from a trade surplus of £236m to a trade deficit of £618m in 2020.
  • The number of active enterprises continues to increase and in 2020 there were 174,130 in the WMCA (3 LEP) area. This represents an increase of 0.7% (+1,255 enterprises) compared to 0.4% growth for the UK since 2019.
  • There were 413 enterprises per 10,000 population in the WMCA (3 LEP) area in 2020, compared to 448 per 10,000 population for the UK. This represents a slight narrowing of the gap.
  • In the WMCA (3 LEP) area, there were 22,375 enterprise births in 2020. This is a considerable decrease of 20.6% (-5,800 births) since 2019, with the UK also decreasing (by 8.3%) over the same period.
  • There were 53 enterprise births per 10,000 population in the WMCA (3 LEP) area in 2020, the same proportion as reported for the UK. Both of these figures have fallen compared to 2019.
  • Enterprise deaths in the WMCA (3-LEP) area increased by 12.5% (+2,510 deaths) since 2019 to 22,580 in 2020, contrasting with the UK overall which saw a 2.5% decrease over this period.
  • As with previous years, the findings suggest the WMCA 3-LEP area performs better on short-term survival (1–2-year enterprise survival rates are higher in the West Midlands than the UK average), but lag behind when it comes to longer-term survival (3-5 years enterprise survival rates in the UK are higher than WM).
  • The latest available data for 2020 for the WMCA (3 LEP) area shows that the number of high growth enterprises has decreased from 690 in 2019 to 620 in 2020. This equates to a decrease of 10.1% (-70 enterprises), which is greater than the UK decrease of 4.0%.
  • Research conducted by WMREDI has led to the formation of a contingent of the city’s largest professional employers to launch the ‘Birmingham Business Pledge’, as a declaration of intent of support for the city’s future. The Future Business District Report looks at the long-term recovery from the Covid-19 pandemic and offers direction and best practices for central business districts across the UK. The Pledge is a statement from 19 leading Birmingham employers, including Avison Young, CBRE, Deloitte, Ernst & Young LLP, about the city’s future. Its aim is to achieve a way forward for a more sustainable, economically and socially productive city centre through collaborative action.
  • Uncertainty remains in the region, but the recovery signs are remarkably promising. The wide range of economic and social indicators we track, summarised in this year’s Birmingham Economic Review 2021, show growth and optimism as a part of a tentative bounce-back. The West Midlands has a strong legacy of excellence in advanced manufacturing. This sector should thrive but is predicted to employ significantly fewer people. The related assets, engineering and innovation capabilities in the region give it a strong competitive advantage in space and aerospace, sustainable energy storage, low-carbon transport systems, precision health technologies and other growth industries.
  • Over the next few years, the UK faces further challenges which, like the economic impacts of Covid, will worsen the socio-economic inequalities between people and places across the country. Prof Simon Collinson notes that:
    1. City-regions are the best places to focus intelligent interventions for balanced growth;
    2. Skills are the key link between growth and levelling up;
    3. Universities can help make innovation central to levelling up.
  • Prof John Goddard highlights that to justify public funding universities need to refine their roles as local anchor institutions by participating in the co-production of knowledge and skills, working with the private, public and voluntary sectors to drive place-based innovation, investment, and growth. This means linking R&D to regional outcomes and expanding the role of CAs and Elected Mayors in articulating needs and opportunities for research.
  • Rebecca Riley highlights opportunities for the future in the Birmingham Economic Review – increased demand for green open space and events, which could boost the attractiveness and investment in spaces in the city; considerable pent up demand and spend capacity in the economy; business models that have adapted and innovation has accelerated, with businesses more likely to have a mindset to take advantage of opportunities, technology and innovation. This creates an environment more open to change and improvement. The potential of 15-minute cities bringing services closer together and more local travel will have an impact on climate planning and business corporate social responsibility as travel times are reduced; there is greater use of online communication and services are closer to the customer; broader life considerations are important, highlighting sustainability and place attractiveness in a holistic sense. Cities like Birmingham will need to adapt to these emerging issues, mitigating the risks and taking advantage of the opportunities.
  • Raj Kandola also highlights that throughout this extraordinary period firms in Birmingham have continued to demonstrate the unique qualities of resilience and collective resolve which have long been synonymous with the city and its business community. The Quarterly Business Report seems to reflect that sentiment, with a notable uplift in domestic demand, a nominal climb in international sales and a welcome upturn in recruitment levels. 66% of businesses expect their turnover to increase over the next 12 months and 60% expect their profit levels to go up – a level of confidence on a par with pre-pandemic levels.
  • The WMCA has launched its next round of digital bootcamps to improve the digital skills of residents across the region. The bootcamps are free of charge for learners and will aim to equip WM residents with digital skills.
Pandemic Impacts
  • In England the percentage of people testing positive for coronavirus (COVID-19) continued to decrease in the week ending 13 November 2021; we estimate that 824,900 people in England had COVID-19 (95% credible interval: 775,500 to 873,700), equating to around 1 in 65 people.
  • It was reported that research from risk management and insurance brokerage firm Gallagher has found that 72% of businesses across the West Midlands have faced supply chain disruptions in the last 12 months. Over the last year, businesses in the region have experienced serious supply chain disruptions six times on average, directly leading to a loss of income, with 35% of companies taking the extreme step of temporarily shutting down elements of their business. Gallagher found 80% of business leaders in the West Midlands expect these supply chain issues to continue in 2022, with 72% of leaders concerned about the potential negative impact disruptions will have on their organisation.
  • Beatfreeks has released its new report: ‘The Second Dose’, which found that 37% of over 2000 Gen Zs surveyed said they felt anxious about either big events, public spaces with lots of people or feeling in close proximity to a large number of others.
  • Research by Employment Hero has found that the desire to travel after the pandemic and Brexit could see UK SMEs facing a major workforce shortage, as employees rush to leave the country for permanent overseas residence. It was reported that Employment Hero had found that 53% of workers in the UK are considering taking a job overseas, with the main factor being to travel.
  • The hospitality industry is continuing to struggle, due to a lack of EU workers. Many businesses are facing staffing shortages. Reports suggest that ONS data shows that hospitality businesses are now twice as likely as those in other industries to struggle to fill vacancies. With 30% of all hospitality businesses reported issues in filling posts.
  • Brexit has made it much more complicated to import both goods and people from the continent to the UK and this has severely affected Christmas Markets. The main reason for many businesses not coming is they are Small and Medium Enterprises (SMEs) and do not necessarily have the capacity to fill out all the documentation correctly.
Latest Data – reflects global patterns in prices, employment, unemployment and vacancies
  • Since the start of 2021, the average price of gas has been steadily increasing. Since the start of the year, the price has more than tripled, with an increase of 302% since 1 January 2021. Despite this week’s 4% week-on-week increase, the seven-day rolling average SAP was 23% lower than five weeks ago (week ending 10 October 2021).
  • According to Springboard, in the week to the 13th November 2021, the volume of overall retail footfall in the UK increased by 1% from the previous week and was 85% of the level seen in the equivalent week of 2019.
  • 5% of WM businesses reported having challenges when trading with customers in other UK nations.
  • When asked if their business was using, or intending to use, increased homeworking as a permanent business model going forward, 31.3% of West Midlands businesses said yes, and 38.5% said no.
  • From August to October 2021, there were an estimated 1,172,000 job vacancies, a record high, an increase of 388,000 from the pre-coronavirus pandemic January to March 2020 level, with 15 of the 18 industry sectors showing record highs.
  • For July to September 2021 show the employment rate increased 0.4 percentage points on the quarter, to 75.4%. The UK unemployment rate was estimated at 4.3%, 0.3 percentage points higher than before the pandemic, but 0.5 percentage points lower than the previous quarter.
  • The redundancy rate increased on the quarter (0.2 thousand per employee) and has returned to pre-pandemic levels (3.7 per thousand employees July to September 2021).
  • Growth in average total pay (including bonuses) was 5.8% and regular pay (excluding bonuses) was 4.9% from July to September 2021. Annual growth in average employee pay has been affected by temporary factors that have inflated the headline growth rate.
  • For the three months ending in September 2021, the West Midlands Region employment rate (for those aged 16–64 years) was3%. Since the three months ending June 2021, the employment rate saw a decrease of 0.2 percentage points (pp); while there is an increase of 0.1pp when compared to the same period in the previous year. The West Midlands, at -0.2%, was one of only 5 UK regions to see a decrease.
  • Since September 2021 there has been a decrease of 1.3% (-2,240) claimants in the WMCA (3 LEP) area, slightly less than the UK decrease of 1.8%. When compared to October 2020, the number of claimants has decreased by 15.9% (-33,130) in the WMCA (3 LEP) area, with the UK decreasing by 22.2% over the same period.
  • There were 31,440 youth claimants in the WMCA (3 LEP) area in October 2021. Since September 2021, there was a decrease of 3.3% (-1,070) claimants in the WMCA (3 LEP) area, below the UK decrease of 4.3%.
  • Between September and October 2021 all regions showed steady growth in the number of payrolled employees, with only London having fewer than at the start of the coronavirus (COVID-19) pandemic.
  • While the overall rate of vacancy growth has slowed recently, the number of vacancies has increased across all industries. The fastest rates of growth compared with last quarter were seen in construction (41.1%) and transport and storage (40.4%).
  • The number of job postings increased sharply in October. In total, there were 212,942 unique job postings across the WMCA 3 LEP geography, which equates to 30,800 (17.0%) more than in September, suggesting continuing heightened demand.
  • There has been a total of 547,800 claims made from 151,600 individuals in the WMCA (3 LEP) across all SEISS grants; the total claims reached a value of nearly £1.4bn
  • The number of employments on furlough peaked at 8.9 million on 8th May 2020. This fell to 2.4 million on 31st October, rose again to 4.9 million employments on furlough on 31st January 2021. However, the number of employments on furlough has fallen since January and the latest provisional figures show that when the scheme ended, there were 1.14 million employments on furlough (30th September 2021). Since the start of the scheme, a total of 11.7 million jobs have been put on furlough for at least part of the duration of the scheme.
  • In total, the WMCA (3 LEP) area had 77,500 employments furloughed on 30th September 2021. This reflects a 4.5% take-up rate of eligible employments for the scheme, compared to the UK-wide rate of 4.0%. When compared to 31st August 2021, the number of employments furloughed in the WMCA (3 LEP) area decreased by 14,600 (-15.9%, UK -15.5%).
  • In the WMCA (3 LEP) area there were nearly 1.86m jobs in 2020. Since 2019, for the WMCA (3 LEP) area this was a decrease of 0.9% (-17,000 jobs) and nationally there was a 1.9% decrease. In 2020, there were nearly 1.27m full-time employees and 587,000 part-time employees in the WMCA (3 LEP) area. When compared to 2019, full-time employee jobs increased by 0.6% (England -1.8%) while part-time decreased by 4.4% (England -2.0%).
  • In the WMCA (3 LEP) area, the business, professional and financial services sector accounts for the highest percentage of jobs at 20.0% (approximately 371,345 jobs) and this is also the highest sector nationally at 21.1% in 2020. For the WMCA (3 LEP area) this sector has increased since 2019 by 2.5% (+9,115), while nationally there was a decrease of 2.8%.
  • The mean personal well-being score for life satisfaction was 7.5 in the West Midlands (7.1 GB), worthwhile was 7.7 in the West Midlands (7.3 GB), happiness was 7.5 for West Midlands adults (7.1 GB) and anxiety was recorded at 3.7 for West Midlands adults (3.9 GB).

Download and view a copy of the West Midlands Economic Monitor

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.

This blog was written by Rebecca Riley, Business Development Director 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 or the University of Birmingham.

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