This week has seen rapidly rising inflation globally and a return to double-digit inflation in the UK for the first time in 40 years.
Extreme weather events continue to cause concern, with drought conditions in parts of Europe, low river levels and wildfires. With athletes leaving Birmingham, attention is focused on capitalising on the impact of the Birmingham 2022 Commonwealth Games, locally and regionally.
- Runaway energy and food prices, negative real wage growth and COVID lockdowns have shaken the global economy. Barclays forecast that China will post a sharply declining negative Q2 GDP figure and the Euro area will enter a recession from Q4 this year.
- Inflation has been rapidly rising globally. It hit 6% in the Euro area in June, which is a record high since the Euro was formed.
- Extreme weather as a result of climate change is continuing to rock multiple countries across the world. This week, due to extreme heat and low rainfall levels, several rivers across Europe including the Rhine and Po, have seen rapidly reducing water levels. Shippers have said that they are having to reduce their freight cargo by up to 25% to be able to navigate the shallower waters.
Inflation: national trends and regional impact
- Rapidly rising food, drink and energy costs have pushed UK inflation into double digits for the first time since the early 1980s. In the latest Consumer Price Index (CPI) release from the ONS, inflation hit 10.1% in the 12 months to July 2022, up 0.7% from June. The largest single contributor to this increase came from food and non-alcoholic beverages.
- A report from the Centre for Cities, looking at inflation by place, found that the Midlands and the North are set to be most heavily impacted. Key contributory factors to higher inflation rates in the Midlands are: (1) poor quality housing stock which is energy inefficient; (2) vehicle-related spending: in areas where there is greater reliance on cars; and (3) lower income places are most likely to experience higher inflation rates and are less able to absorb new cost shocks.
Birmingham 2022 Commonwealth Games: an early assessment of impact and longer-term prospects
- A very early assessment of the impact of the Birmingham 2022 Commonwealth Games, using the Socio-Economic Impact Model for the UK (SEIM-UK) based on some historic data and assumptions from the assessment of the Glasgow Commonwealth Games, estimates that the Birmingham 2022 Commonwealth Games will lead to an increase in output of £346-£518 million, an increase in GVA by £167-£251million and create between 4,678 and 7,002 jobs (FTE).
- The assessment is based specifically on the evaluation of visitor impacts, taking into account estimates of spending of three groups: tourists (overnight visitors), excursionists (same-day visitors), and athletes. (Note that it excludes the investment in the Perry Bar regeneration scheme amongst others associated with the Commonwealth Games.)
- The most significantly impacted sectors are those that saw the impact of the demand shock, led by visitor spending on hotel stays, eating out, tickets to the Games, and local retail. The most impacted occupation is Elementary Administration and Service Occupations.
- There is significant potential for indirect impacts that are less easy to quantify. The Games will likely have generated reputational effects that challenge negative perceptions of Birmingham. There might be young aspiring athletes inspired by seeing the games in person. The new infrastructure built for the events might have considerable impacts on local communities over time. Additionally, there are impacts on civic pride.
- One area that has been of focus for Birmingham 2022 is the potential for the Games to attract business investment and increase exports. To help capitalise on this investment the Business and Tourism Programme (BATP) has been developed to coincide with the Commonwealth Games.
- Based on previous experience of mega-events, a tourism boost for the host area can be anticipated in the longer term. Mega-events are associated with the development of regional creative industry profiles and local talent.
- New infrastructure investments associated with the Commonwealth Games include the £73 million Sandwell Aquatic Centre; £700 million of public sector investment in transport, homes and facilities in Perry Barr, and a £72 million transformation of Alexander Stadium for the Games and communities. This new infrastructure will serve local communities and help attract more events to the region in the future, with the stadium becoming home to UK Athletics, locking in longer-term employment and multiplier effects.
Business Activity Index
- The West Midlands Business Activity Index decreased from 51.1 in June 2022 to 50.3 in July 2022, indicating stagnation in local output. The UK Business Activity Index decreased from 53.7 to 52.1 in the same period. Firms indicated that business activity was restricted due to adverse demand conditions, reduced market confidence, input shortages and ongoing inflationary pressures.
- The West Midlands Export Climate Index decreased from3 June 2022 to 50.1 in July 2022, indicating a lack of export opportunities for West Midlands firms, reflected by contractions for the USA (47.7) and Germany (48.1).
- The West Midlands Future Business Activity Index decreased from 70.3 in June 2022 to 68.3 in July 2022. The degree of optimism was at its second-weakest level since October 2020 as firms reported concerns over the recession, political uncertainty, inflationary pressures and the war in Ukraine. However, firms still reported some level of confidence for the upcoming twelve months by predictions of demand improvements, new product launches and investment in people and systems. Out of the 12 UK regions and nations, the West Midlands was third highest for Future Business Activity in July 2022.
- For the three months ending June 2022, the West Midlands Region employment rate (aged 16 – 64 years) was 74.9%. Since the three months ending March 2022, the employment rate decreased by 1.3pp which was the second highest decrease across all regions. There was an increase of 0.3pp when compared to the same period in the previous year. The UK employment rate was 75.5%, a decrease of 0.1pp when compared to the previous quarter but an increase of 0.5pp when compared to the previous year.
- For the three months ending in June 2022, the West Midlands Region unemployment rate (aged 16 years and over) was 4.6%, which has increased by 0.1pp since the previous quarter but a decrease of 0.4pp from the previous year. The UK unemployment rate was 3.8%, an increase of 0.1pp from the previous quarter, but a 0.9pp decrease when compared to the previous year.
- For the three months ending March 2022, the West Midlands Region’s economic inactivity rate (aged 16 – 64 years) was 21.3%, an increase of 1.0pp from the previous quarter but a decrease of 0.1pp when compared to the previous year. The UK economic inactivity rate was 21.4%, remaining the same level as the previous quarter and an increase of 0.2pp from the previous year.
- There were 145,745 claimants in the WMCA (3 LEP) area in July 2022. Since June 2022, there has been a decrease of 0.01% (-20) claimants in the WMCA (3 LEP) area, while the UK decreased by 0.5%. When compared to March 2020 (pre-pandemic figures), the number of claimants has increased by 23.9% (+28,155) in the WMCA (3 LEP) area, with the UK increasing by 21.5% over the same period. 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 3.7% for the UK in July 2022.
- There were 24,740 youth claimants in the WMCA (3 LEP) area in July 2022. Since June 2022, there was an increase of 1.9% (+460) youth claimants in the WMCA (3 LEP) area, while the UK increased by 2.4%. When compared to March 2020 (pre pandemic figures), the number of youth claimants has increased by 9.6% (+2,160) in the WMCA (3 LEP) area, with the UK increasing by 4.0% over the same period. Overall, for the WMCA (3 LEP) the number of youth claimants as a percentage of residents aged 18- 24 years old was 6.3% compared to 4.4% for the UK in July 2022.
- Nationally, between the 29th July and 5th August 2022, total online job adverts decreased by 0.7%. On the 5th August 2022, total online job adverts were at 121.9% of their average level in February 2020.
Local business intelligence
- The impact of inflation on rising costs/prices continue to be a major business issue, particularly for utilities, wages and materials. Business groups have warned that the inflationary spiral is “unsustainable” for businesses.
- Increasing prices continue to significantly impact businesses across all sectors, who are dealing with price rises in every area and step of their supply chain. Hospitality businesses, hotels, and retailers have reported that they are experiencing huge cost changes – including a minimum of a tripled price for electricity and gas – and are having to decide between substantially raising prices for customers, and thereby discouraging footfall, or absorbing the costs in their business models.
- Recruiting staff is increasingly difficult and problematic for many businesses. 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, is fuelling demands for very high wages and favourable conditions – even from those who are unskilled, inexperienced or new entrants to the labour market.
- Regional business groups have stressed the need to find ways of attracting new talent, both at home and from overseas, in a suite of support from Government that also encourages businesses to invest in their infrastructure and people.
- With regard to supply chains, businesses continue to report difficulty in obtaining materials continues with increases in lead times and costs leading to lost business.
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.
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.