West Midlands Economic Impact Monitor – 12th May 2023

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Latest results suggest business conditions continue to remain challenging, but estimates show small signs of positive improvement for some measures; examples include a stable proportion of businesses reporting they were able to get materials, goods and services from within the UK, and more businesses reported having fewer concerns for their business.

Both the Institute of Chartered Accountants in England and Wales (ICAEW) and Lloyds Business Barometer point to business confidence recovering back into positive territory, albeit still remaining very weak, as companies are concerned over their future sales with continued high inflation and interest rates. There are also worries over how tight government fiscal policy will need to be in the months and years ahead.

  • The US Treasury Secretary has warned that if the US government does not raise the debt ceiling, the government could run out of money by early June. There have been 78 debt ceiling rises since 1960.
  • The Conservatives saw significant council seat losses whilst both the Lib Democrats and Labour saw substantial gains in local elections on 4 May. Labour now has a majority in 71 councils a gain of 22; this is the most majority councils of any party. Conservatives now have a majority in 33 councils which is a loss of 48, making them the second-best performing party overall. The Lib Dems have a majority in 29 councils: an increase of 12. The Green Party won its first-ever majority Green Party council. No overall control councils increase by 12 to 91.
  • Voter turnout averaged around 30%-35% and few local authorities reported turnouts of more than 50%. This suggests that the electorate is disillusioned with politics.
  • Both the System Average Price (SAP) of gas and the System Price of electricity fell in the week to 30 April 2023 compared with the previous week, decreasing by 4% and 9%, respectively; the latest SAP of gas is now 80% below the peak observed in late August 2022, the System Price of electricity is 79% lower.
  • In the last week, Revolut debit card spending increased by 16 pp with increases in every sector, the largest of which was retail, which increased by 26 pp. Overall retail footfall increased to 105% of the level of the previous week.
  • In the week to 30 April 2023, the number of UK flights was unchanged from the previous week, but 8% higher than this time last year; meanwhile, both the average number of daily UK ship visits and the average cargo and tanker ship visits were lower than the equivalent week of last year.
  • The number of families in England and Wales with adult children living with their parents rose 13.6% between the 2011 Census and Census 2021 to nearly 3.8 million. (Note that in 2021 the Census occurred during the Covid-19 pandemic.)
  • In 2021, around 1 in every 4.5 families (22.4%) had an adult child, up from around 1 in 5 (21.2%) in 2011.
  • The total number of adult children living with their parents increased 14.7% in the same period from around 4.2 million in the 2011 Census to around 4.9 million in Census 2021.
  • The Centre for Cities’ report, All Cylinders: The Role of the Midlands Engine in the British Economy, shows that the Midlands Engine economy is £18 billion per year smaller than it should be. Despite cities being centres of production, but cities were below their productivity potential. Whilst the manufacturing sector is performing close to the average UK productivity rate, city centres are failing to attract enough higher-productivity service export firms, hampering growth. Every city in the Midlands Engine, except Coventry, is less productive than it should be for its size. Accounting for 89% of this output gap, cities, and in particular city centres, are not attracting enough high-skilled service export firms to increase productivity across the region.
Labour Market
  • Almost a third (31%) of businesses with 10 or more employees were experiencing worker shortages in April 2023, up 2 pp from late March 2023; more than half (53%) of those affected indicated that their employees were working increased hours as a consequence.
  • Online job adverts grew by 1% on 28 April 2023 compared with the previous week, though it has broadly trended downwards over the last 12 months and is now 17% lower than in 2022.
  • 80% of businesses surveyed (92% of whom are SMEs) attempting to recruit have faced challenges, with hospitality and manufacturing firms still the most likely to report difficulties.
  • Almost six in ten (59%) businesses are actively trying to recruit staff.
  • There are calls on the Government to work with businesses on solutions including skills training, investment, and urgent reform of the Shortage Occupations List (SOL) .
Business conditions and confidence
  • Looking ahead to May 2023, 7 in 10 (71%) businesses reported some form of concern for their business, down from 72% for April 2023; the top two concerns continued to be energy prices (18%) and inflation of goods and services prices (16%).
  • The number of businesses added to the Inter-Departmental Business Register (IDBR) (business creations) in the UK in Quarter 1 (Jan to Mar) 2023 was 22% lower than in Quarter 1 2022; this is the lowest level of Quarter 1 business creations since the start of the data series in 2017.
  • There was a decrease in creations in all 16 main industrial groups in Quarter 1 2023 compared with Quarter 1 2022, with the most significant decrease coming from transport and storage.
ICAEW findings for the West Midlands:
  • The Business Confidence Index, while positive, is very weak and below the UK average.
  • Domestic sales growth is, however, outpacing the UK average. This should remain the case in the year ahead, although growth is expected to soften. By comparison, export growth has been weaker than the national rate, but is expected to strengthen.
  • Challenges surrounding the availability of skills and staff turnover are widespread but easing.
  • Fewer recruitment problems may help to explain why companies have the strongest outlook for employment growth across the UK and salary growth appears to be stabilising (but at a record rate).
  • Input price inflation remains elevated but is easing, and businesses expect a marked slowdown.
  • The investment outlook has dimmed. Growth in both capital investment and Research & Development (R&D) budgets is set to slow markedly.
Make UK has released an industrial strategy report and the key findings include:
  • 99% of manufacturers believe the UK should have an industrial strategy.
  • 56% of firms do not feel there has ever been a robust government vision for UK manufacturing.
  • 14% of manufacturers think there was a stronger vision for manufacturing 10 years ago.
  • 29% of manufacturers think that the lack of an industrial strategy is the primary reason why the sector has not been able to grow more quickly in the last decade.
  • 87% of companies say an industrial strategy would give their business a long-term vision.
  • Three-quarters of manufacturers say an industrial strategy would offer a stable business environment.
  • 7 in 10 companies want to see skills as a core focus for a 2023 UK Industrial Strategy.
  • Almost 6 in 10 want to see innovation as a core focus.
  • Almost half want to see digitalisation and green transition as a core focus.
  • 8 in 10 UK manufacturers feel they are at a competitive disadvantage compared to other manufacturing nations with industrial strategies.
  • Three-quarters cited Germany as a nation which has a better environment for the manufacturing sector than the UK, 43% cited the USA and 3 in 10 cited France.
  • Over three-quarters of companies think an industrial strategy should be guaranteed beyond Government terms and maintained by a separate body.
Long Covid Impacts and Employment
  • Long Covid symptoms adversely affected the day-to-day activities of 1.5m people (79% of those with self-reported long Covid), with 381,000 (20%) reporting that their ability to undertake their day-to-day activities had been “limited a lot”.
  • The TUC points out employees have been let down. This is especially the case in sectors where employee Covid cases were high and where jobs involve a high level of personal contact.
  • The Government points out that the current Equality Act would cover long Covid on a case-by-case basis but appropriate diagnosis is required. The medical profession is still learning and developing these diagnostics, making it difficult for long Covid sufferers to evidence the issues and impacts to employers.

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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