West Midlands Economic Impact Monitor- 8th July 2022

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This week has been a tumultuous week in politics and is still unfolding as this monitor is written. This will not help the instability in the economy, which continues to show signs of contraction. The latest MakeUK Survey shows exports on a precipice and investment nosediving, and the OBR are predicting the effects of the trade and co-operation agreement will reduce long run productivity by 4%.

The first release of the census this fortnight has revealed flaws in the previous populations estimates for the region impacting on Coventry in particular.

  • New UK confirmed case numbers have risen from 93 p/m people to 208 p/m people. Across the Midlands hospital admissions are rising, ventilation beds have increased, and number of beds occupied with confirmed cases have increased from 1,010 on June 21, up to 2,020 on 4th July
Census
  • The population of the WMCA (3 LEP) area has grown by 6.8% to 4.3m, slightly above the England growth at 6.6%, the 7 met area grew at 6.7% to 2.9m
  • Growth follows the national trend, with declines in the under 5s, the 20-year-olds and the 40-year-olds, however the decreases aren’t as great as those nationally. Whilst other age groups have increased at a higher rate than England (5-9, 10-14, 15-19)
  • The WMCA area previously was the youngest city, this remains the case for the 7 met under 25s (33.6% of the population), and for the under 30s (7 Met 36.7% and 3 LEP Level 39%) outside London.
  • Population density is far above national averages (434 per sqk) at 3,238 for the 7 met area and 1,010 for the 3 LEP (WMCA area)
  • Comparison of census with ONS population estimates, show there is under reporting in some areas and over reporting in others, in WMCA this has impacted on Coventry, where estimates are higher than local evidence and the Census now shows.
  • Issues are based on underestimation of emigration post university, students carrying out the survey whilst at home (not place of study), underestimation of death rates and birth rates, City-REDI Analysis shows this is as much as -34k fewer people in Coventry.
  • Birmingham although it fell was not as far as Coventry, this appears to have been due to cumulative overestimations. Birmingham has seen net migration out at the 30-39 age group (which has led to previous overestimation in this group).
  • This impacts on planning decisions, including housing and services (with both under and over supply issues).
Economy
  • Wall Street closed sharply lower in a broad sell-off on Tuesday as dire consumer confidence data dampened investor optimism and The Financial Times consumer sentiment has hit its lowest level since the University of Michigan’s index began in 1952 in the US, stoking fears of a recession
  • Deloitte has found that if climate change continues to worsen, then it could cost the global economy US$178 trillion over the next 50 years, or a 7.6% cut to global GDP.
  • Bank of England (BoE) Financial Stability Report has found this week that Global economic conditions have worsened. Placing pressure on the finances of UK households and businesses. Many central banks have used interest rates to help slow down price increases. However, markets have been volatile and financing conditions have tightened. This combination of higher prices, weaker growth and tightening financial conditions will make it difficult for households and business to repay or refinance debt; However, despite market volatility, businesses can still access market funding; and UK banks remain strong and are able to support UK households and businesses
  • OBR forecasts the new trading relationship, as set out in the ‘Trade and Cooperation Agreement’ (TCA), will reduce long-run productivity by 4% relative to remaining in the EU.
  • Resolution Foundation forecasts that over next decade, the UK will have 1.3% lower productivity, and real wages will fall by £470 per person every year than in the absence of Brexit.
  • London School of Economics, the total cost of climate change damages to the UK are projected to increase from 1.1% of GDP at present to 3.3% by 2050 and 7.4% by 2100. The greatest single risk of climate change damages to the UK economy is from catastrophic disruption to the global economic system
  • British Chambers of Commerce earlier this year, found 54% of firms thought the EU trade deal was not enabling them to grow or increase sales. With only 8% believing it had helped them to grow
  • The region continues to have a mixed picture, West Midlands business confidence remaining ahead of the UK average in the latest Business Barometer from Lloyds Bank Commercial Banking. While recent business survey data suggesting an “underlying resilience” within regional businesses in tackling the current economic volatility. The West Midlands is still a top destination for Foreign Direct Investment, still has historically high equity investment and has an SME base that is growing faster than several regions.
  • For 2020, GVA p/job data needs to be treated with caution the metric only declined around 1% in the UK during 2020 as a result of the Coronavirus Job Retention Scheme (CJRS). The average amount of hours worked per job will have been much lower than normal. This means large year-on-year declines in the levels of output per job for 2020. As such, GVA per job data for 2020 are not very representative of longer-term trends. Smoothed GVA per filled job for the WM 7 Met. area decreased by 0.05% (-£25.50) since 2019 to £51,446 in 2020. Over this period, the UK increased by 0.4% (+£246 to £58,054), meaning the WM 7 Met. area had a shortfall of £6,608.
  • 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).
  • FDI projects delivered a total of 5,871 jobs in the WMs region in 2021-22. This was a decrease of 6.9% (-433 jobs) from 2020-21. The UK had an increase over this period of 25.9%. There were 5,571 new jobs created. An increase of 25.4% (+1,128 new jobs) from 2020-21. The UK increase over the same period, by 53.2%. The WMs region accounts for 9% of the UK total for FDI projects – the fourth largest share in 2021-22
  • 6% of WMs businesses reported prices of goods or services brought in May 2022 had stayed the same. Although, 49.5% of businesses reported that prices had increased.
  • WM businesses are reporting that recruiting staff is becoming increasingly difficult. The combination of changed employee expectations (e.g., reduced hours worked, working from home etc) plus the high demand for labour across sectors and disciplines, are fuelling demands for very high wages and favourable conditions – even from those who are unskilled, inexperienced, or new entrants to the labour market. 5% of WMs businesses reported experiencing difficulties in recruiting employees in May 2022
  • MakeUK latest report highlights recruitment has slowed even with vacancies at record levels and investment amongst manufacturing firms have dropped sharply. 2/3 of manufacturing companies are saying continued rising energy costs are causing catastrophic or major disruption to business operations. As a result of the poor economic outlook, the growth forecast has been revised downwards
Levelling up
  • Resolution Foundation report highlights while the UK’s economic geography has been fundamentally shaped by the shock of deindustrialisation, the correlation between these shocks and productivity today is weak as some areas have successfully transitioned to a services-led economy. Four key factors help explain differences in area-level productivity: the size of the local economy, levels of human capital, and levels of physical and intangible capital. Together these explain around 40% of the spatial variation in productivity. Coventry was within the top 10 most productive areas of the UK.
  • Levelling Up is not simply a south v north issue as inequalities are stark within regions as well as between them. There are large disparities between areas within London GVA p/worker in Wandsworth is £35.15, compared to £60.46 for Tower Hamlets.
  • Research by the University of Sheffield found that the UK has one of the highest levels of regional inequality of any OECD country. The research found that one of the most significant reasons for the enormous imbalances within the UK likely stemmed from an over-centralised national governance system.
  • Research carried out by the LIPSIT project, found that the current systems of subnational governance are largely unsuited to the task of levelling up. Use of funding competitions on placed-based initiatives, create an extremely inefficient mechanism to deliver placed interventions. This is due to the short-term, fragmented, overly specific nature of competitive funding leading to wasteful processes, not being spent in the places with the most need, inability to plan for the long-term, and failed strategy implementation.
  • Research led by the University of Birmingham concluded that the competitiveness of the ‘left-behind’ regions would be negatively impacted by Brexit. The manufacturing sector is one of the most vulnerable sectors to Brexit. The research found the most negatively impacted sectors were most likely to be found in economically weaker areas. The result is widening inequalities as ‘left-behind’ places suffer more from Brexit, compared to more prosperous areas of the UK.
  • Covid-19 has also contributed to the widening of socio-economic inequalities. During the pandemic, the people most likely to be furloughed or made redundant were those in low-paid jobs, whilst most high earners continued to work. Additionally, as poorer communities are associated with higher rates of pre-existing illness, they were disproportionately vulnerable to Covid-19, resulting in disruptions to work and loss of income. Furthermore, during the pandemic students had unequal levels of access to technology to enable them to engage in meaningful education.
  • The housing crisis has been growing for a number of years, with house prices hitting a record high in 2021, driven by undersupply of affordable housingShelter estimates that 17.5 million people (22 million including children) do not have access to a safe decent home, that suits their needs and is affordable. PWC research found that 70% of respondents viewed housing as one of the most effective factors for reducing inequality.
  • Nationally 72% of people have a total income below the regional average: 7 out of 10 are below the average of £23,200 (the national average is £24,400).
  • The West Midlands is the 5th most unequal region measured by the GINI index following London, South East, East of England and Scotland.
  • Research By CityREDI highlights men are wealthier than women, but at lower incomes, there is greater equality. Disparity happens at the higher income where 8 out of 10 of the richest people are men. But there is more inequality in the income of men, than between genders and inequality between males contributes more to the overall inequality.
  • People get richer in their middle age and the older people are the more unequal the incomes. But this divergence is set early in life and continues to diverge, suggesting the other income is set by inheritance or differences in individuals’ backgrounds early on. Middle-age inequality contributes most to the overall age element of income inequality.
  • Kenilworth and Southam, Stratford on Avon, Bromsgrove, Sutton Coldfield, Warwick and Leamington are the top 5 unequal Parliamentary constituencies in the West Midlands where high values of income are accompanied by high inequality.
  • Income inequalities have been worsening during the current Covid 19 crisis. Two-thirds of the occupations most affected by lockdowns earn lower wages and those occupations that were best suited for homeworking are typically on higher wages. It means that those who are of lower income have been hit harder.
  • Levelling up policy needs to look at not only place, but also employment, gender and wage disparities, investment in jobs which are higher value and the access to assets, networks and knowledge people have from a young age are key to changing structural issues in the long-term
  • A report from the Institute for Government argues that metro mayors, such as those in the West Midlands and Greater Manchester have demonstrated that devolution works. The mayors have improved coordination and provided a strong voice for their regions, but a lack of real power means unrealistic expectations have been set for what metro mayors can achieve and what they can be held to account for
Green House Gas emissions Update
  • In 2020, the WMCA (3 LEP) area produced a total of 17,270 kt CO2e emissions, a decrease of 11.2% (-2,188 Kt CO2e) compared to a decrease of 10.5% nationally since 2019. Carbon dioxide emissions for the WMCA (3 LEP) area equated to 4.1 tonnes per capita, below the England average of 4.3 in 2020. Emissions were also 4.1 kt per km2 for the WMCA (3 LEP) area compared to 1.8 kt per km2 for England in 2020.

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 Rebecca Riley, Associate Professor 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.

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