West Midlands Impact Monitor- 22nd July 2022

This week has seen the UK’s previously highest temperature record smashed with temperatures in excess of 40C recorded. Wildfires have raged across many parts of Europe. Inflation has been rising globally. In the UK the cost of living crisis has intensified as inflation hit 9.4% for the 12 months to June 2022.

Record temperatures

Wildfires have been sweeping across Europe, including in France, Spain, Portugal, Italy and Greece, triggered by the hottest heatwave the region has ever seen.
These fires will significantly impact Europe’s economies. Already thousands of hectares of agricultural land have been destroyed, with countries losing significant proportions of their agricultural crops. The heatwave has also added to pressures on struggling healthcare systems.
Coningsby in Lincolnshire recorded the UK’s highest temperature of 40.3C on 19^th July, beating the previous highest recorded temperature of 38.7C, at Cambridge Botanic Gardens on 25 July 2019. Provisional figures also show the UK experienced the warmest night on record from 18^th-19^th
Heatwaves – and other major weather events – are placing increasing pressure on UK infrastructure. If UK infrastructure struggles to cope with the changing climate it will lead to unprecedented economic and health impacts, which may cost the economy millions.

Inflation and cost of living

Inflation has been rising globally. Sri Lanka last week ousted their Prime Minister over poor economic management which has fuelled inflation in the country. Currently, inflation in the country is at 6% and people have been struggling with daily power cuts and shortages of basics such as fuel, food and medicine.
The cost of living has continued to worsen this week as UK inflation hit 4% in the 12 months to June, up from 9.1% in May. Rising fuel and food prices have been the largest contributors to upwards pressure on inflation. Average petrol prices stood at 184p per litre in June, the highest since records began in 1990 and up from 129.7p a year earlier. The monthly rise was also the largest on record, at 18.1p. The average price of diesel in June was 192.4p per litre, again a record high.
A report from Centre for Cities, has found that there is a geography to the cost-of-living crisis, with a prominent north-south divide. With many of the cities and large towns that were facing higher inflation rates in May 2022 were located in the North, Midlands, and Wales. The report found that a combination of low incomes, poor energy stock, and high share of vehicle-related spending was leading to comparatively high inflation in the Midlands and North.

Oxford Economics Forecasts for the WMCA area, 2020-2040

Updated forecasts from Oxford Economics (OE) project GVA reaching £138.6bn by 2040, an additional £42.6bn. The projected annual growth rate lags the UK rate (1.4%) at 1.16%.
GVA per head in 2022 was £22,761 behind the UK average of £27,044; the forecast for 2040 for the WMCA is expected to reach £32,367.
GVA per job in 2020 was £51,393 and is lagging the UK (£59,432) and is predicted to reach £70,055 by 2040, slightly below the annual growth rate of the UK (1.60%) at 1.57%.
Total employment is predicted to increase by 5.3% to 2040 (behind the UK at 6.7%). The largest increases in employment between 2020 and 2040 are expected to be in Arts, entertainment & recreation (+25.3%), Administrative & support services (+24.2%), and Professional, scientific & technical (+23.5%) sectors.
Overall, the OE forecast takes the view that the region will now fall back to its long-run performance and the gains in growth mode in the run-up to 2019 have been lost because of the impacts of the pandemic specifically on trade and manufacturing.

Regional labour market trends

For the three months ending May 2022, the WM region employment rate (aged 16 – 64 years) was 75.1%, below the UK rate of 75.9%. Since the previous quarter, the employment rate decreased by 0.4pp, and the UK increased by 0.4pp. There was an increase of 1.0pp for the WM when compared to the same period in the previous year and the UK increased by 1.1pp.
For the 3 months ending in May 2022, the WM region unemployment rate (aged 16 years and over) was 4.4%, which has decreased by 0.7pp since the previous quarter (largest decrease across all regions) and a decrease of 1.2pp from the previous year. The UK unemployment rate was 3.8%, a decrease of 0.1pp from the previous quarter, and a 1.1pp decrease when compared to the previous year.
For the three months ending May 2022, the WM region economic inactivity rate (aged 16 – 64 years) was 21.3% – slightly above the UK at 21.1%. Since the previous quarter, the WM economic inactivity rate increased by 0.8pp, while the UK decreased by 0.4pp. The WM remained at the same level when compared to the same period in the previous year, and the UK decreased by 0.3pp.
There were 147,595 claimants in the WMCA (3 LEP) area in June 2022. Since May 2022, there has been a decrease of 0.1% (-170) claimants in the WMCA (3 LEP) area, the UK decreased by 1.2%.
When compared to March 2020 (pre-pandemic figures), claimants have increased by 25.5% (+30,005) in the WMCA (3 LEP) area, with the UK increasing by 23.2% 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 5.6% compared to 3.7% for the UK in June 2022.

Vacancy trends

According to the ONS Vacancy Survey, the number of job vacancies in April to June 2022 was 1,294,000; this was a small increase of 6,900 from the previous quarter and an increase of 498,400 from before the coronavirus (COVID-19) pandemic in January to March 2020.
From April to June 2022, vacancies increased by 6,900, which is the smallest quarterly increase from June to August 2020. Accommodation and food service activities showed the largest increase at 10,200 vacancies. However, gains were offset by falls in other industry sectors, particularly wholesale and retail trade; repair of motor vehicles and motorcycles fell by 7,200.
Data for the WMCA 3-LEP geography from the Lightcast Analyst Tool shows that after a strong rebound in job postings in May 2022, job postings across the WMCA 3 LEP area dipped again in June, down by 12,442 to 131,877 or -8.6%. There was a mixed picture at the local level with 10 local authority areas reporting an increase, eight recordings a decrease, and one, Wolverhampton where there was no change.

Over 50s in the labour market

With some employers facing labor and skills shortages in recent months, concerns have been raised nationally about a downturn in the number of over 50s in the workforce and the widening of the employment gap between people aged over 50 and the wider working population.
From the mid-1990s until the Covid-19 crisis there was a trend towards increasing labour market participation of the over 50s, particularly amongst women and people in their 60s.
Over 50s face a range of barriers in accessing learning and employment. Including qualifications, skills, and training: employers are less likely to train older than younger workers; difficulties in finding quality employment after job loss; perceived age discrimination; and poorer health.
Part-time and flexible working can help older people stay in employment for longer. Personalized support and an asset-based approach, taking account of the value of over 50s’ existing skills, instilling positive attitudes and expectations, and considering issues of pay, fulfillment through work and flexibility to fit with non-work responsibilities and interests, and health challenges.

A partnership approach to employment support and skills

Although higher levels of educational attainment translate into better employment outcomes, improving the supply of skills is only part of the story in leveling up. This is because skills are a derived demand; so, necessitating a focus on the demand for and utilisation of skills in addition to skills supply.
At the sub-national level, this calls for a holistic focus on employment support and skills strategies, characterised by integration across policy domains, most notably skills and economic development (where skills policy needs to be linked to economic development in order to address weak demand), but also cognate fields such as transport, health, and housing. This means a partnership approach at the local/ city-regional/ regional level, founded on ongoing formal and informal communication, is necessary in order to apply local knowledge to tailor strategies to local needs and opportunities.

Learning from past pandemics and economic shocks

Past pandemics have led to long-term structural changes in national economies, labour shortages, and distrust in outsiders. As with mandatory preventative measures today, in past pandemics these have led to protests against big government.
History shows that pandemics erode trust in institutions and leaders. Given the already low levels of trust in British society, this could lead to even greater political volatility. Measures to rebuild civic trust are urgently needed.
Maintaining a safety net for the most vulnerable communities can avoid contributing to enhanced social polarisation in the aftermath of Covid-19.
The Covid-19 pandemic and its aftermath can be harnessed to reset the economy, counter inequality, and mitigate environmental unsustainability. Community wealth building is one alternative economic approach that could be considered.
The pandemic strengthens the case for further devolution, given the need to apply knowledge from “on the ground” to diversify local economies and develop citizen-centred services.
The pandemic has accelerated trends towards home working and e-commerce. City center development needs to be more flexible, with accessible green spaces and public squares, and consideration of minimum space standards for housing.

Long run disparities

Policies that support left-behind places could boost the level of activity and the underlying growth rate. This would significantly increase the net present value of the local growth policy
There is little evidence that regional policies come at the expense of reduced aggregate economic growth. The evidence suggests large spatial disparities hamper economic growth.
The UK economy has become so highly unbalanced that the UK is now one of the world’s most inter-regionally unequal countries
The real long-term implications of the pandemic will only begin to become evident in the coming years. Regions specialising in tourism, hospitality, entertainment, and transportation services will be especially hard hit, as will many retail centres.

ONS Updates

Job adverts are decreasing slightly in the region, but still remain at 126% of the Feb 2022 level
1 in 5 businesses say their turnover has decreased
Nearly 50% of businesses say prices of goods and services have increased, whereas only 22.5% of businesses reported that prices sold had increased
Over 40% of businesses say energy prices are the leading cause of price rises
60% of businesses reported that staffing costs had increased and 40% of businesses are experiencing recruitment difficulties
62% of people are spending less on non-essentials, using less fuel at home or for travel, and spending less on shopping.
43% are finding it hard to pay energy bills, increasing by 6% from last month, and 6% are behind on bills.

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 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.