This week, the news has been dominated by developments in Ukraine, and this has affected the data and research published on general economic conditions. Many forecasters and now reviewing their forecasts given the unfolding situation across Europe, and its wider impacts on the global economy. Once again this has flagged how interrelated countries are and how much shocks affect individuals, businesses and economies.
Invasion of Ukraine – some economic implications
- The Putin regime has mounted the largest invasion of a neighbouring country in decades, invading Ukraine on 24th February 2022.
- Countries around the world have rallied to support Ukraine. Many governments have begun imposing sanctions on Russia and Russian government supporters, in order to reduce funding for the invasion. However, there have been criticisms that these sanctions will not take effect fast enough. Many businesses have also begun to stop business operations within Russia to stay in line with sanctions.
- There are also likely to be massive economic disruptions, with additional supply chain issues following the disruption of the Covid-19 pandemic. McKinsey analysis shows the biggest exports from Russia are in the oil, gas and other extractive industries. A good deal has been said about the potential implications of the conflict for energy supplies. But there are several other sectors that are likely to be impacted; in particular, the chemicals, construction, and transportation sectors are likely to face either supply shortages, price increases, or both. The food manufacturing and automotive manufacturing sectors are also strongly connected to exports from Russia.
- The price of oil rose above $100 a barrel, while European natural gas prices initially surged by almost 70%.
National and regional developments
- Nationwide’s House Price Index has seen the average cost of a home increase by 12.6% in February, pushing average house prices over £260,000 for the first time. This follows the highest rise in prices for the beginning of the year since 2005. House prices have hit their highest level since records began in 1952, rising to £260,230. This was up £29,162 on February 2021 and is the largest ever year on year increase ever recorded, almost matching the average annual wage of full-time employees last year at £31,285.
- ONS has released model-based estimates of regional GVA. These estimates of seasonally adjusted growth are modelled from a variety of data sources, including the first estimate of UK gross domestic product (GDP) for Quarter 4 (Oct to Dec) 2021. ONS found that all regions are estimated to have seen positive quarter-on-previous-quarter growth in GVA in Q4 2021. The East Midlands, East of England, London, South East, South West and West Midlands had greater growth than the UK-wide figure in Quarter 4 2021.
- The British Business Bank’s eighth annual Small Business Finance Market Report 2021/22 has found that the West Midlands smaller businesses are showing strong signs of recovery and a renewed appetite for growth. Equity investment in West Midlands smaller businesses reached £277 million by the end of 2021’s third quarter.
- The amount of debt held by smaller businesses has significantly increased compared to pre-pandemic levels due to businesses accessing the government’s Covid-19 emergency finance schemes to help them survive. Encouragingly, however, debt repayments are becoming a smaller share of businesses’ cash flow as UK economic recovery helps boost their turnover.
- Projections released by Midlands Connect and WSP ahead of its EV conference show that the Midlands is on the brink of an electric vehicle boom – and could have more than 1.7 million electric cars on its streets by the end of the decade. This suggests that the Midlands is set to see a 2,475% increase in uptake of Electric Vehicle cars by the end of 2030, as the projections predict EV usage to rise from 68,725 EVs today to 1,769,855 by 2030. This means almost a third of cars in the region will be EVs by 2030.
Regional economic trends
- Quarterly GDP analysis shows for the West Midlands region there was a growth of 5.1% in 2021 Q2, while England overall increased by 4.8%. All regions and countries in the UK showed positive quarter-on-quarter growth.
- For the West Midlands region, there was positive growth in GDP for three sectors in 2021 Q2; the production sector by 0.9%, the services sector by 5.6% and the construction sector by 16.5%. The agriculture, forestry and fishing sector had a contraction in GDP by 2.2%.
- For the West Midlands region, there was positive growth in GDP for 16 industries and contractions in two industries in 2021 Q2.
- Online job adverts for eight regions increased between 11th February 2022 and 18th February 2022. Week-on-week online job adverts decreased by 4.5 percentage points in London, in contrast, online job adverts increased by 4.1 percentage points for both the West Midlands and the North East. On the 18th February 2022, total online job adverts for the West Midlands were at 161.6% of their average level in February 2020.
- According to Springboard, overall retail footfall in the UK in the week to 19th February 2022 was at 74% of the level seen in the equivalent week of 2019; this was a 4% decrease when compared to the previous week. In the week to 19th February 2022, footfall in high streets decreased by 7% from the previous week and was 65% of the level seen in the equivalent week of 2019. Over the same period, footfall in retail parks remained unchanged and was 94% of the level seen in the equivalent week of 2019 and shopping centres remained unchanged and was 72% of the level seen in the equivalent week of 2019.
- 6% of responding West Midlands businesses reported that Covid-19 was the main reason for the change in the business turnover over the last two weeks, 1.4% reported that the “end of the EU transition period” was the main reason. While 24.9% reported “other” as the main reason and 15.0% of West Midlands businesses reported Covid-19 and the end of the EU transition period.
- 1% of West Midlands businesses reported the prices of materials, goods or services brought over the last month compared with normal price fluctuations had increased more than usual and less than 1% reported prices decreased more than usual.
- 6% of responding West Midland businesses reported to currently experiencing a shortage of workers. Due to the shortage of workers, 66.3% of West Midlands businesses reported employees were then working increased hours.
Procurement
- In England, the government will shortly be introducing new rules on public procurement which will actively encourage the adoption of more innovative processes and solutions. A procurement strategy has already been published. Public authorities will need to consider innovation, sustainability, job creation and social value goals when they prepare their tenders for procuring products or services. They will have to enhance procurement skills and embed them within the teams commissioning innovative solutions.
- Birmingham City Council already has long-standing experience in this area. It can play a leading role in responding to the government’s initiative. Across the region, many authorities will have similar problems. The Digital Services Roadmap has already made it clear that procurement ambitions are essential for the effective and early deployment of digital solutions. That thinking needs to be expanded to other sectors.
Local industrial specialisation
- There could be advantages in the West Midlands region pursuing diversified specialisation processes, concentrating their efforts in given domains of local industrial specialisation, such as the automotive industry or advanced manufacturing, as well as areas of higher added-value services such as business and professional services or logistics. At the same time, in order to increase its industrial resilience, the region must continue to diversify and replace existing specialisations with new (and improved) ones.
- A unique strength of the West Midlands is the manufacturing sector (aerospace, automotive, and rail). The skills, technologies, components, and local institutions built around these existing firms in the region are in an exceptional position to secure future regional diversification pathways into the space sector, for example.
Addressing regional inequalities
- City-REDI international comparative research on reducing inequalities at city-region level found that sustained high levels of funding were imperative in transforming the city-regions. The 2030 target in the Levelling Up White Paper means that commitments in the UK are being planned over an eight-year timescale. By contrast, for instance, despite high levels of funding, it took 15 years for unemployment to start falling in Leipzig and a further 15 years to bring it closer to the national average. This shows how levelling up is likely to be a long-term process.
Experience of selected population subgroups in the labour market
- Disabled people have lower employment rates than the rest of the UK population, regardless of their qualification level. Yet the biggest barrier disabled people face in gaining employment are the negative attitudes and discrimination they can face throughout the recruitment process.
- As 20% of the working population are disabled, and 8 out of 10 disabled people acquired their disability during their working life, the chances are that disability is an issue that you will come across in your business or experience yourself.
- The Covid-19 pandemic has disproportionately impacted young people’s experiences of, and transitions into, work. Across the UK there were 340 thousand fewer payrolled employees aged 18-24 years in April 2021 than in February 2020.
- The unequal nature of the jobs crisis has exacerbated inequalities amongst young people. As previously in the context of a difficult labour market, young people – especially young women – have taken up further and higher educational opportunities.
- Young people have experienced the greatest deterioration in mental health during the pandemic of any age group.
- The scarring effect of higher unemployment and lower earnings persisting for young people who fail to make ‘good’ transitions into the labour market highlights both the importance of combatting worklessness and facilitating transitions from education to employment and job quality
- In 2020 and 2021 experience of work and transitions into work were disrupted for many young people.
- When they are not successful in finding desired roles requiring higher-level skills, graduates often have the opportunity to ‘bump down’ in the labour market to take up roles requiring lower qualifications, so reducing opportunities for the less qualified.
Apprenticeships
- Apprenticeships have become a significant route into the workplace. Between August 2021 and October 2021, 130,200 people started apprenticeships in England according to the Government website. 86% of employers said apprenticeships helped them develop skills relevant to their organisation; 78% of employers said apprenticeships helped them improve productivity; 74% of employers said apprenticeships helped them improve the quality of their product and service.
- Employers say that qualified apprentices are 15% more employable than those with other qualifications. Apprenticeships boost productivity to businesses by on average £214 per week. 90% of apprentices stay in employment with over 70% staying with the same employer. Nearly a quarter of former apprentices are promoted within a year of finishing their apprenticeship.
Covid-19
- Across Europe, case numbers have been falling. This is largely because of continued vaccination programmes, as well as the end of winter. Additionally, as a result of the social distancing ending and countries and economies reopening, vaccination rates have increased, this is because many countries, events and venues, require guests to be vaccinated.
Download and view a copy of the West Midlands Economic Monitor
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 it here.
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.