West Midlands Economic Impact Monitor – 7 July 2023

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Business conditions continue to remain challenging, but estimates show some signs of improvement: (1) a smaller proportion of businesses report supply chain disruption, (2) more businesses report that they are able to get materials, goods, and services from within the UK, and (3) fewer businesses report price inflation of goods and services or energy prices as their main concern. Yet inflation remains high, job vacancies are slowing, and 18.2% of responding West Midlands businesses expect inflation to be the main concern for business this month.

Global and national economy
  • Global GDP growth in 2023 is projected to be 2.7%: the lowest annual rate since the global financial crisis, except for the 2020 pandemic period. A modest improvement to 2.9% is foreseen for 2024. Annual OECD GDP growth is projected to be below trend in both 2023 and 2024.
  • The Bank of England (BoE) has raised interest rates for the 13th consecutive time as it tries to stop inflation rising to 5% from 4.5%. With core inflation remaining high, further rises throughout the year are likely.
  • The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.9% in the 12 months to May 2023, up from 7.8% in April.
  • The Consumer Prices Index (CPI) rose by 8.7% in the 12 months to May 2023.
  • Rising prices for air travel, recreational and cultural goods and services, and second-hand cars, resulted in the largest upward contributions to the monthly change in both the CPIH and CPI.
  • Core CPI (excluding energy, food, alcohol and tobacco) rose by 7.1% in the 12 months to May 2023, up from 6.8% in April. This is the highest rate since March 1992
  • 1 in 8 (13%) businesses reported that their employees’ hourly wages had increased in May 2023 compared with April 2023.
  • The total number of online job adverts on 23 June 2023 was 3% below the level seen in the equivalent period of 2022.
  • Both the System Average Price (SAP) of gas and the System Price of electricity in the week of 25 June 2023 were around half the level of the equivalent period of 2022.
  • Consumer behaviour indicators mostly saw decreased activity, with the aggregate CHAPS-based indicator of credit and debit card purchases decreasing by 1 point (Bank of England CHAPS data), with overall retail footfall falling to 98% of the previous week.
  • Producer input prices rose by 0.5% in the year to May 2023, down from a rise of 4.2% in the year to April 2023.
  • Private rental prices paid by tenants in the UK rose by 5.0% in the 12 months to May 2023, up from 4.8% in the 12 months to April 2023.
West Midlands Economy
  • Some business activity measures suggest an economic recovery in the first half of 2023. The Federation of Small Businesses (FSB) West Midlands Small Business Index (WMSBI) shows that confidence levels amongst regional small business owners are at their highest level for a year and ahead of the UK average.
  • The West Midlands Business Activity Index increased from 52.8 in April 2023 to 54.2 in May 2023: the strongest increase seen since April 2022. Business activity growth was linked to better sales, capacity growth, favourable demand conditions and publicity.
  • The West Midlands New Business Index decreased from 54.0 in April 2023 to 53.8 in May 2023. Despite the decline, this is the fourth consecutive month for rises in new business intakes. The rise in new work was linked to improved demand trends, new clients, and better business conditions.
  • The West Midlands Export Climate Index decreased from 53.1 in April 2023 to 52.6 in May 2023. Despite the fall, the latest reading signals the second fastest expansion rate in a year.
  • The West Midlands Future Business Activity Index increased from 76.5 in April 2023 to 78.5 in May 2023. The latest reading is at a 16-month high.
  • In 2019, the Midlands accounted for £56 billion in exported UK goods, representing 16% of the UK’s total goods exports. However, the value of goods exports experienced a significant decline in 2020, dropping by over 10% to £45.6 billion – five times higher than the national average decline of around 2%.
  • Additionally, the Midlands’ services exports were severely disrupted, with a near 25% reduction in export value, making it the worst-hit region. Between 2021 and 2022, the Midlands’ rate of recovery lagged behind the UK average, resulting in a two-percentage-point reduction in the region’s share of UK exports.
  • Machinery and transport account for over 60% of the region’s exports, but the decline and slow recovery in this sector, particularly in the West Midlands, have negatively impacted the region.
  • In the WMCA (3 LEP) area there was a total of 160 FDI projects creating 7,605 new jobs in 2022-23. FDI projects increased by 21.2% (+28) and new jobs increased by 82.1% (+3,429) since 2021-22.
  • FDI projects delivered a total of 8,652 jobs in the West Midlands region in 2022-23. This was an increase of 47.4% (+2,781 jobs) from 2021-22. The UK had a decrease over this period of 6.8%.
  • 2% (193 of 469 total projects) of West Midlands FDI projects between 2020-21 to 2022-23 were from EU countries. This was higher than the UK-wide figure of 38.4%.
  • Since the year ending Q1 2022, the West Midlands region’s total value in goods exports increased by £5.7bn (+22.2%) to £31.6bn in the year ending Q1 2023. The overall value of UK trade in goods exports increased at a slower rate, by 17.5% (to £380.6bn in the year ending Q1 2023).
  • The West Midlands had a trade in goods deficit of £11.1bn in the year ending Q1 2023.
  • In the year ending Q1 2023, the largest value goods exported for a SITC section in the West Midlands was machinery & transport at nearly £21.5bn. This SITC section accounted for 68.1% of the total exports value; of which 61.2% (£13.2bn) were non-EU exports
  • At a Country Group level, the highest value of West Midlands goods exports was to the EU at £14.2bn, accounting for 44.9% of the total in the year ending Q1 2023. Exports to the EU from the West Midlands have increased by £1.9bn (+15.4%) since the year ending Q1 2022.
  • 3% of responding West Midlands businesses were able to get the materials, goods or services they needed from within the UK in May 2023.
  • In 2021, GVA per hour in the West Midlands Combined Authority (WMCA) area was £34.05. Since 2020, the WMCA area increased by 1.5% (+£0.50), which matched the UK growth rate. When compared to 2019, GVA per hour in the WMCA area increased by 4.2% (+£1.36) while the UK increased by 4.5% (+£1.64).
  • In 2021, GVA per filled job in the WMCA area was £50,970. Since 2020, the WMCA area increased by 0.4% (+£194.41), while the UK increased by 0.7%.

West Midlands Labour Market and Skills

  • 4% of responding West Midlands businesses reported currently experiencing a shortage of workers. 59.5% of responding businesses reported that they were not experiencing a shortage of workers.
  • 8% of West Midlands businesses reported employees were working increased hours due to the shortage of workers.
  • For the three months ending April 2023, the West Midlands Region employment rate (aged 16 – 64 years) was 75.6%. Since the three months ending January 2023, the employment rate has increased by 1.6 percentage points.
  • For the three months ending in April 2023, the West Midlands Region unemployment rate (aged 16 years and over) was 4.8%, which has increased by 0.3 percentage points since the previous quarter and an increase of 0.4 percentage points from the previous year.
  • There were 126,240 claimants in the WMCA area in May 2023. Since April 2023, there has been a decrease of 0.9% (-1,085) of claimants in the WMCA area, while the UK decreased by 2.2%. When compared to March 2020 (pre-Coronavirus pandemic), the number of claimants has increased by 27.1% (+26,940) in the WMCA area, with the UK increasing by 22.1% over the same period.
  • In May 2023, there were 22,950 youth claimants in the WMCA area. Since April 2023, there was an increase of 0.02% (+5) youth claimants in the WMCA area, while the UK decreased by 1.7%. When compared to March 2020 (pre-Coronavirus pandemic), the number of youth claimants has increased by 19.8% (+3,795) in the WMCA area, with the UK increasing by 11.3% over the same period.
  • Research conducted by WMREDI indicates that within Birmingham and the wider West Midlands universities and colleges already contribute considerably to up-skilling and reskilling through developing future sectoral skills, piloting new ways of learning, supporting graduate employability, addressing access to higher education (HE) barriers, developing pathways between further education (FE) and HE, introducing applied higher-level skills development initiatives and working with regional governance stakeholders.
  • The Skills and Productivity Board has emphasised that to fully realise the benefits of individual, firm or government investments in skills, there is a need for complementary investments in other types of capital (namely physical, intangible, financial, social and institutional) – as set out in the Levelling Up White Paper. Longer-term, for levelling up of skills to be fully effective there is a need for broader investment across health, education, social services and public transport.
  • Extensive research has attempted to quantify the impact of key characteristics on the probability of non-completion in UK higher education. Seven major influences are an unsatisfactory learning experience, inappropriate subject choice, the university’s location and environment, difficulties in fulfilling academic requirements, dissatisfaction with provided resources, financial/employment hardships, and challenges with social integration.
  • In other studies, family background has emerged as a potent predictor of enrolment loss, as it is closely linked with students’ financial capabilities, readiness for higher education success, and career aspirations post-university. Specifically, university students who come from highly deprived backgrounds show a considerably higher tendency to drop out when compared to their counterparts from the highest socio-economic group, even when factors such as demographic traits, educational achievement, the type of university, and the subject of study are taken into account.

Economic inactivity

  • ‘Looking after family and home’ is one of the categories of economic inactivity that actually fell, rather than rose, throughout the pandemic, standing some 166,000 lower in the first quarter of 2023 (at 1.66 million) than in the first quarter of 2020 (when it was 1.83 million) according to figures from the Office for National Statistics. Retirement among the population of working age (16-64 years) had already fallen back to below pre-pandemic levels by the end of 2022.
  • As of 5th March 2023, an estimated 1.9 million (2.9% of the population) were reporting Long COVID lasting four weeks or more (ONS). As of March 2022, an estimated 80,000 people had left employment in the UK due to Long COVID
  • Changes in age structure are estimated to have contributed 0.29 percentage points (63% of the actual rise) to the rise in economic inactivity. The tail of the baby boomer cohort moving into their early 60s, an age group with a high level of economic inactivity, and exiting the labour market due to retirement is expected to continue to bring down the size of the workforce until 2026, other things being equal (ONS).
  • The Office for National Statistics highlighted that the percentage of people aged 16 to 64 years who report a long-lasting health condition that limits either the kind or amount of work they can do rose from 16.4% to 18.1% between 2019 and 2022.
  • Aerospace is a significant manufacturing sub-sector in the WMCA area. The West Midlands region’s share of UK aerospace is estimated at around 10%, representing a Gross Value Added (GVA) of around £1bn and around 25,000 full-time equivalent jobs.
  • The Midlands is home to the largest Aerospace cluster in the UK with 30% of aerospace businesses and more than half of domestic investment going to aerospace companies in the Midlands. This means the Midlands is also home to 7% per cent of Europe’s and 3% of the world’s aerospace industry.
  • The principal hub of the cluster is the heart of civil aerospace operations at Rolls-Royce, the world’s second largest manufacturer of aircraft engines, in Derby. A second cluster hub is organised around the companies Collins Aerospace, Rolls-Royce Control Systems, Meggitt and Moog, in Birmingham, Wolverhampton and Coventry, which supply electro-mechanical systems to control aircraft moving parts
  • Midlands-based businesses in the manufacturing and engineering sector received just 7.44% of equity investment raised in the UK from 2017 to 2021, despite making up 18.7% of the high-growth companies in this sector.
  • However, Midlands-based companies received 22.9% of all grant money received by high-growth companies in manufacturing and engineering, suggesting that the Midlands companies in the sector are being recognised for their innovation.

Download and view a copy of the West Midlands Economic Monitor

This blog was written by Anne Green, Professor of Regional Economic Development 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, WMREDI or the University of Birmingham.

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