West Midlands Economic Impact Monitor- 6th January 2023

We are seeing severe unseasonal weather with Europe seeing high temperatures, closing ski resorts and the US seeing temperatures as low as -45C. At home the most important pressures facing the UK are the cost of living (93%), the NHS (81%), the economy (78%), and climate change and the environment (58%). Around 9 in 10 (92%) adults reported their cost of living had increased compared with a year ago. The Prime Minister has made 5 pledges, to halve inflation, grow the economy, ensure national debt falls, cut NHS waiting lists and pass laws to stop small boats.

Business Activity

17,145 businesses shut up shop over the year, 49.6% higher than last year. Shops were closing at a rate of 47 per day throughout 2022, large chains closed 6,055 shops while 11,090 were shut by independents. compared to 2019 the number of store closures has only increased 6.7% as last year (2021) covid policies supported businesses so there were fewer closures.
The WM Business Activity Index decreased from 49.6 in October 2022 to 48.8 in November 2022 – remaining below the 50-growth mark for the fourth consecutive month. The decline in business activity across the WM was linked to lower sales, high stock levels and subdued market confidence. However, out of the 12 UK regions, the WM was the fourth highest for business activity in November 2022.
WM Future Business Activity Index decreased to the lowest level seen in over two-and-a-half years in October 2022 (60.7), the index rose to 64.7 in November 2022. WM firms were optimistic for the next 12 months due to hopes of contained inflation, lower interest rates, better trade conditions, advertising and new product launches. Out of 12 UK regions, WM was 2nd highest for Future Business Activity in Nov 2022.

Prices

Take-home grocery sales increased by 7.6% in the 12 weeks to the 25^th Comparative year-on-year growth was even higher at 9.4%: the fastest rate recorded since February 2021, with sales reaching a new record of £12.8bn. Whilst value sales were up, the real driver of this spending has been grocery price inflation rather than increased purchasing. Looking at the amount people bought within this period, sales measured by volume are down by 1% year-on-year.
YouGov found that most people planned to spend around the same amount as last year, with 42% of respondents stating they insist they will do anything to have the Christmas they want this year. However, 25% of the of respondents stated they were unable to have the celebration they would like as they were unable to afford it; this is double the 12% that stated this in 2021. 38% of people also reported that the cost of Christmas was “too stressful”, with 25% unable to enjoy the occasion as they worry about the expense.
54% of people also reported, at the time of this survey (30^th November to 1^st December), that they had fallen behind or were struggling to keep up with their bills and credit commitments, up from 41% at the same time last year. 22% of respondents expecting that their debts will increase over the Christmas period, this is up 14% from last year. Among those already in financial distressed 37% expect their debts to increase over the period. 1 in 11 people (9%) will also avoid paying back debt, to fund their Christmas plans.
The WM Input Prices Index increased from 75.1 in Oct 2022 to 76.7 in Nov 2022, the strongest increase seen in five months. WM firms reported higher energy, food, material, transportation, utility, and wage costs.

Trade in Goods

Since the year ending Q3 2021, the WM region’s total value in goods exports increased by nearly £1.9bn (+7.2%) to £28.0bn in the year ending Q3 2022. The overall value of UK trade in goods exports increased at a greater rate, by 17.4% (to £359.5bn in the year ending Q3 2022).
The WM had a trade in goods deficit of £12.95bn in the year ending Q3 2022.
In the year ending Q3 2022, the largest value goods exported for a SITC section in the WM was machinery & transport at £18.3bn. This SITC section accounted for 65.6% of the total exports value; of which 59.0% (£10.8bn) were non-EU exports.
The highest value of WM goods exports was to the EU at £13.2bn, accounting for 47.2% of the total in the year ending Q3 2022. Exports to the EU from the WM increased by £1.3bn (+10.9%) since year ending Q3 2021 – below the UK overall growth (+24.0%).

Enterprise trends

The latest available data for the WMCA (3 LEP) area shows that the number of high growth enterprises has decreased further, from 610 in 2020 to 550 in 2021.
In the WMCA (3 LEP) area, there were 25,360 enterprise births in 2021. This represents an increase compared to 2020 above the national average (+19.3% compared to +9.3% across the UK) but remains below pre-Covid levels (almost 27,000 births in 2019).
Enterprise deaths in the WMCA (3 LEP) area increased by 7.3% (+1,630 deaths) since 2020 to 24,065 in 2021, slightly below the UK overall increase of 9.4%.
The WMCA 3-LEP area performs better on short-term survival (1–2-year enterprise survival rates are higher in the WM than the UK average), but lags when it comes to longer-term survival (3-5 years enterprise survival rates in the UK are higher than in the WM). Of the 23,215 enterprise births in 2018 in the WMCA (3 LEP) area, 47.5% (11,035) were still active after 3 years compared to 57.6% for the UK.

Other economic trends and indicators

Smoothed GVA per hour worked for the WM 7 Met. area increased by 1.8% (+£0.59) since 2019 to reach £33.70 in 2020, the UK increased by 2.1% (+£0.78 to £37.73). The WM 7 Met. area had a shortfall of £4.03 to the UK-wide rate in 2020, reflecting regional disparities in productivity.
The latest available data shows that there was a decline in expenditure for R&D in the WM region (-11.2%, UK-wide +3.4%) to £2.9bn.
Visits to retail and recreation locations have yet to be above pre-pandemic levels in the WM region. In August 2022, it was at 94.8.% which was above the UK average of 90.7%.
Online job adverts decreased for all the UK regions between the 9^th and 16^th Dec 2022. The WM online job postings fell by 6.4% and on the 16^th December 2022, it was at 107.7% of the average level in February 2020.
1% of WM businesses reported the prices of goods or services brought in Nov 2022 when compared to the previous month had increased. 45.9% reported that prices had stayed the same and 1% of WM businesses reported that prices of goods or services brought had decreased.
1% of WM businesses reported that energy prices were a factor for the business to consider rising prices in January 2023.
0% of WM businesses reported that debt repayments were between 50% and 100% of turnover in November 2022. 2.5% of WM businesses reported that repayments were between 20% and 50% of turnover. 29.0% of WM businesses reported that repayments were up to 20% of turnover.
In December 2022, respondents across the UK felt the four main issues facing the UK were the cost of living (93%), NHS (81%), economy (78%) and climate change & the environment (58

Labour Market Statistics

The sector which has consistently had the highest number of vacancies throughout the duration of this period has been healthcare. This is unsurprising given longstanding staff shortages and the rise in vacancies in this sector during the pandemic.
WMCA has a growing professional services sector, however many employers are clearly struggling to find the skills they need to fill these vacancies. This will be having a detrimental effect of the region’s growing financial and professional services sector, which in turn may slow down its rate of growth.
For the three months ending October 2022, the WM Region employment rate (aged 16 – 64 years) was 73.6%. Since the three months ending July 2022, the employment rate decreased by 1.7 percentage points (pp) – the largest decrease seen across all regions. When compared to the same period in the previous year, the WM employment rate decreased by 1.1pp. The UK employment rate was 75.6%, an increase of 0.2pp when compared to the previous quarter also an increase of 0.2pp when compared to the previous year.
For the three months ending in October 2022, the WM Region unemployment rate (aged 16 years and over) was 4.9% – the highest rate across all UK regions. The UK unemployment rate was 3.7%.
For the three months ending October 2022, the WM Region economic inactivity rate (aged 16 – 64 years) was 22.5%, an increase of 1.6pp from previous quarter, which was the largest increase across all regions. When compared to the previous year, the WM economic inactivity rate has increased by 1.1pp. The UK economic inactivity rate was 21.6.
There were 144,535 claimants in the WMCA (3 LEP) area in November 2022. Since October 2022, there has been an increase of 2.4% (+3,455) claimants in the WMCA (3 LEP) area, which matched the UK growth rate.
Overall, for the WMCA (3 LEP) the number of claimants as a proportion of residents aged 16 – 64 years old was 5.5% compared to 3.6% for the UK in November 2022.
There were 25,905 youth claimants in the WMCA (3 LEP) area in November 2022. Since October 2022, there was an increase of 3.1% (+770) youth claimants in the WMCA (3 LEP) area, the UK increased by 2.9%. Overall, for the WMCA (3 LEP) the number of youth claimants as a percentage of residents aged 18-24 years old was 6.5% compared to 4.6% for the UK in November 2022.

Unemployment and well-being

In the wake of the COVID-19 pandemic there is growing emphasis on well-being, particularly of young people whose mental health was more likely to be negatively impacted than the UK population by the social restrictions introduced to limit the spread of the virus in 2020.
A Policy Commission being led by the University of Birmingham, as part of the European University for Wellbeing (EUniWell) network, is looking at the impact of the pandemic specifically on the well-being of young people, highlights that making ongoing mental health support widely available through education providers, employers, and the health service will be an essential part of an inclusive recovery.

Delivering skills for local productivity, innovation and prosperity

Research and practice highlight local areas are best served by policies that seek to nurture skills ecosystems, which stimulate dialogue and collaboration between further and higher education institutions and build demand among employers across businesses and public services. International evidence indicates that best practices can be found where local and national regulatory and funding approaches have been aligned to support sustained partnerships.
To improve local skills ecosystems, we need to provide confidence and coherence for the different actors in local areas by committing to policies and investing in the capability of local institutions beyond the short term. This crucially includes more substantial devolution of powers and funding for skills and the factors that influence them.

Can AI provide coherent responses to policy challenges?

An experiment to see if a chatbot can answer any of the big questions about regional inequality in the UK reveals that it is only able to provide general explanations.
The experiment shows that policy development relies on current, robust information, that is geographically and thematically relevant. Even where information is available, it will take the skills, knowledge, and capacity of people to make it relevant and responsive in real-time – and especially to take account of the tacit knowledge of felt experiences and what will make a real difference to people’s lives.

Download and View a copy of the West Midlands Economic Impact 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.