The final monitor before the Easter break brings us the news that input prices continue to slowly fall, which should contribute to decelerating inflation, yet the global economy is still showing slow growth. Most indicators show a moderate improvement, but all indications are that recovery will continue to be very slow. The Office for Budget Responsibility (OBR) has said the next few years are likely to be characterised by further weak growth, similar to that seen since 2011 in the UK. They have said the Consumer Price Inflation (CPI) continues to fall, but living standards are likely to return to their pre-pandemic levels in the medium term, but there is little headroom for government spending. This month Alice Pugh has produced a set of blogs on developing business cases, it’s vital to have good business cases to tackle the challenges we face in these uncertain times.
Economy
- In 2024, the global economy is expected to register slowing growth for the second consecutive year. This is primarily due to the dampening effect of high interest rates in most major economies globally.
- In Euromonitor International’s Q1 2024 baseline forecast, the global real GDP growth forecast for 2024 is 2.7%, unchanged from the Q4 2023 forecast, and 3.1% in 2025. Global inflation is expected to further decelerate to 5.4% in 2024 and 3.6% in 2025.
- The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.8% in the 12 months to February 2024, down from 4.2% in January.
- The largest downward contributions to the change in both CPIH and CPI came from food, restaurants and cafes, while the largest upward came from housing, household services, and motor fuels.
- Producer input prices fell by 2.7% in the year to Feb 2024, up from a revised fall of 2.8% in the year to Jan 2024.
- The total number of online job adverts on 15 March 2024 was 1% higher than the previous week, however, this was 18% below the level seen in the equivalent period of 2023 (Adzuna).
- Nearly 1 in 5 (18%) trading businesses expect to raise the prices of goods or services they sell in April 2024, up 2 pp from expectations for March 2024, but down 6% points on expectations for April 2023.
- The System Price of electricity and the System Average Price (SAP) of gas decreased by 3% and 2%, respectively, in the week to 17 March 2024 when compared with the previous week.
- Retail sales volumes (quantity bought) were estimated to be flat (0.0%) in February 2024, following an increase of 3.6% in January 2024 (revised from an increase of 3.4%).
- The West Midlands Business Activity Index remained at 53.1 in February 2024. This reading still indicates an increase in business activity which was due to new orders, demand resilience and promotional activity.
- The UK Business Activity Index increased from 52.9 in January 2024 to 53.0 in February 2024.
- Out of the twelve UK regions, the West Midlands was the fourth highest for business activity in February 2024.
- The West Midlands Future Business Activity Index decreased from 78.1 in January 2024 to 76.8 in February 2024. Despite the fall, 58% of firms expect to see an increase in output volumes and only 4% report pessimism. Firms were also optimistic due to hopes of better demand conditions and marketing effects.
- Out of the 12 UK regions, the WM was the third highest for the Future Business Activity Index in Feb 2024.
- In 2023, the West Midlands region exported £34.9bn worth of goods and imported £42.5bn. This represents a trade in goods deficit of £7.6bn, a decrease from the trade deficit in 2022 which was £12.7bn.
- Since 2022, the West Midlands region goods exports increased by nearly £5.0bn (+16.6%) to £34.9bn in 2023. Conversely, UK exports decreased by £8.7bn (-2.3%) to £365.7bn.
- There was a mixed picture of the annual change across the regions. Notably, the West Midlands region had the joint highest annual percentage increase (with Northern Ireland), followed by the East Midlands.
- The West Midlands accounted for 9.5% of UK exports third highest after the SE and London at 11.3% and 10.6%.
Labour market and claimant counts
- Professor Donald Houston and Stephen Hunsaker explore the UK labour shortage, suggesting that a combination of baby boomers retiring, high COVID-19 infection rates during the pandemic, capacity constraints in the NHS, and Brexit are all at play.
- A new research paper by Professor Tony Champion, Professor Anne Green and Dr Kostas Kollydas, published in Population, Space and Place, delves into the dynamics of university-related migration in the UK and its implications on spatial disparities, with a keen focus on subregional impacts.
- Payrolled employees in the UK rose by 15,000 (0.0%) between December 2023 and January 2024 and rose by 386,000 (1.3%) between January 2023 and January 2024. While the number of payrolled employees continues to increase, the rate of annual growth is decreasing.
- The UK employment rate (for those aged 16 to 64 years) was estimated at 75.0% from November 2023 to January 2024, below estimates of a year ago and down on the latest quarter. The UK economic inactivity rate for those aged between 16 to 64 years was 21.8%, above estimates of a year ago (November 2022 to January 2023) and an increase on the latest quarter.
- There were 127,235 claimants in the WMCA area in February 2024. Since January 2024, there has been an increase of 3.5% (+4,345) claimants in the WMCA area, while the UK increased by 4.0%.
- Compared to Feb 2023, claimants have increased by 5.2% (+6,275) in the WMCA area, with the UK increasing by 5.7%.
- When compared to February 2019, claimants have increased by 55.9% (+45,645) in the WMCA area, with the UK increasing by 51.9%.
- For WMCA the number of claimants as a proportion of residents aged 16-64 years old was 6.9% compared to 3.8% for the UK in February 2024. Across the Combined Authorities, the WMCA had the highest rates, and Greater Manchester had the second highest rate at 5.1% down to 2.8% for the West of England.
Local policy and change
- Birmingham City Council has agreed to its budget change plans to deal with its ongoing financial crisis for 2024/25 and 2025/26, to save over £300m. This is even following the exceptional financial support that was granted to the Council of £685m. To save this £300m over the next two financial years, the council will implement a 9.99% rise in council tax over the two years, with protections for vulnerable households. Further, savings will also be made through up to 600 job cuts.
- Alice Pugh discusses the West Midland Combined Authority (WMCA) Deeper Devolution Deal and the main issues local institutions face centralisation, reductions in funding, competitive funding, fragmentation and quality of local government structures
Budget impacts
- The NIC main rate has been cut by 2p in the pound (from 10% to 8%) for an expected 6m employees and 2.2m self-employed workers.
- For the average worker on £35,400, this will be a tax cut worth £450 per year from April 2024. When combined with the previous cuts to NICs, this is a total cut of around £900 for the average earner.
- The IPPR has found that the majority of the benefits from the NICs will be gained by the richest households. For every £1 of the NICs cut, 45p will go to the richest 20% of households with the highest income, whilst only 3p will be gained by the lowest-earning fifth of households.
- Fiscal drag, however, will trap even more people into paying higher taxes. Fiscal drag means that when the income tax thresholds are frozen and do not increase with inflation whilst earnings do, more and more people can be dragged into paying a higher rate of tax.
- Increasing the point at which families start losing child benefits from £50,000 a year (for the highest-income earner) to £60,000 will benefit around 170,000 families.
- The Chancellor has largely retained his post-election spending plans effectively unchanged, despite the anticipation that that he would be making cuts. This will be tight to deliver as the government has little headroom left following the budget, with only £8.9bn headroom; the average in previous years from 2010 has been around £26.1bn.
Income inequality
- Between 2000 and 2012, income inequality in the UK fell, supported initially by a period of job growth, the introduction of the National Minimum Wage and a system of Tax Credits to support those with low earnings.
- The Great Recession following the Global Financial Crisis of 2008 also reduced inequality, as earnings growth stagnated, especially in some high-earning sectors.
- Since 2012, income inequality in the UK has risen, mostly because of further cuts to benefit levels and restrictions on eligibility, although these trends were partially offset by job growth and large increases in the National Minimum Wage.
- It’s important to note that while technological change and globalisation affected all advanced economies, this does not mean that trends in inequality are similar; inequality has increased steadily in the US across this entire period, while the experience of France has been very different. Policy matters.
- In crude terms, increasing taxation towards the top and/or reducing taxation and/or increasing benefits towards the bottom will, at least in the short run, reduce inequality. Some of the policy changes may come with economic costs, ie attracting global talent.
- The broader economic policy challenge is to create the conditions in which public and private investment co-ordinate and coalesce around a balanced portfolio of growth sectors that require a range of skilled jobs – not only high-paying skilled sectors.
West Midlands Economic Impact Monitor 28 March 2024.
This blog was written by Rebecca Riley, 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.