West Midlands Impact Monitor- 27th May 2022

China’s economy is slowing, the US economy is hampered by a tight jobs market and Europe is struggling with labour shortages and a cost of living crisis. In the UK the increase in energy bills is contributing to the rising cost of living, and the West Midlands has a greater proportion of households in fuel poverty than the national average. Nationally, the number of vacancies now exceeds the number of people unemployed.

Global issues

China’s economy is slowing down, with multiple indicators showing greater weakness than many analysts had expected. The impact of lockdowns is worse than expected. In April, retail prices in China were down 1% from a year earlier; the highest youth unemployment rate on record (18.2%); industrial output down 2.9%, with manufacturing down 4.6% and automotive manufacturing down 31.8%.
The US economy is being stifled by an ever-tightening jobs market, as employers struggle to find qualified labour to fill job openings. Currently, for every unemployed worker in the US there is on average 9 vacant positions, with labour market tightness varying by location and industry.
The EU is also struggling with a cost-of-living crisis, following Russia’s invasion of Ukraine, which has meant EU growth prospects have been revised downwards. Rocketing energy prices as a result of the conflict have pushed up inflation and increased economic headwinds during a period when they were expected to subside.
The war in the Ukraine is also stoking a global food crisis. There are massive shortages in grain and fertiliser caused by the war, warm temperatures and pandemic-driven supply problems, which are threatening to tip millions of people into food insecurity. A year ago, wheat was trading in Chicago at US674c per bushel. Today it fetches US1,242c per bushel in a near-doubling of the price driven and compounded by the lack of supply.

National and regional issues

It was announced by OFGEM this week that the cap on energy bills will increase to £2,800 per year in October. This comes after the price cap had already been risen by £693 in April to £1,971. The increase will mean that by October the price cap will have risen by £1,522 compared to the year before.
The rise in the energy price cap will significantly impact households within the West Midlands, compared to other regions. This is due to a greater proportion of fuel poverty amongst its households compared to other regions: 17.8% of West Midlands households are considered to be fuel poor compared with 13.2% across England.
OFGEM also warned that such significant increases in energy bills would likely double the number of households in fuel poverty to 12 million. An announcement of a package of support to help households with energy bills is expected on 26^th
It was announced this week that the railway workers union RMT has voted in favour of strike action across Network Rail and 13 train operating companies. Strike could affect both passenger services and the movement of goods by train, including bulk consignments of fuel, and some food.
The Sue Gray report on the findings of the investigation into alleged gatherings on government premises during Covid restrictions has been published. ‘Partygate’ has impacted negatively on trust between the public, businesses, the government and institutions.
Analyses of Trust in Government figures from the OECD show that trust in government in the UK has decreased from 50.4% in 2010 to 34.7% in 2020. The UK public now has the lowest levels of trust in its government amongst G7 countries. There are concerns that a lack of trust creates a vicious cycle that effects governance and the functioning of institutions, including the capability to address economic insecurity.
Economists are revising down their growth figures for 2023. Inflation has already hit its highest level in 40 years. This is fuelling a rapidly rising cost of living crisis.
However, according to Irwin Mitchell’s UK Powerhouse report, produced by the Centre for Economics and Business Research (CEBR), Birmingham delivered 6.9% GVA growth in the 12 months to Q4 2021, placing it 7^th out of the best performing cities in the UK for economic output. By the end of 2023 the report forecasts that Birmingham will be one few cities outside of the South to retain its position, remaining seventh for growth, with a year-on-year GVA of 2.3% and an economy worth £27bn.

Civil Service job cuts

Following changes to employment in the civil service outlined in the Levelling Up White Paper, which suggested moving civil service jobs out of London, this month the UK Government signalled its intention to cut 91,000 civil service jobs in a bid to save £3.5 billion. The cut would bring total employment in the civil service back to 384,000, the level it was before the Brexit referendum.
Analysis of the regional economic impact, yielded by applying a hypothetical extraction method (HEM) using the Socio-Economic Impact Model for the UK (SEIM-UK), shows that the cut in civil service jobs would have a sizable impact on the national economy, with reductions of £14.6 billion in output, £8.2 billion in GVA and 124,060 FTE employment.
All sectors are impacted negatively. Occupationally, the most pronounced impacts of the shock are found to be in high skilled occupations. The distribution of the impact skews heavily against high skilled occupations with a percentage change in wages for high skilled occupations of -0.55%, -0.41% for medium skilled occupations and -0.23% for low skilled occupations.
Regionally, London has four of the five most concentrated regions (i.e. NUTS 2 regions) in terms of civil service employment. It is amongst the regions most negatively impact by the shock, along with Gloucestershire, Wiltshire and Bristol/Bath, Tees Valley and Durham, Northumberland and Tyne and Wear, Greater Manchester and South Yorkshire. The West Midlands is somewhat less negatively impacted.
The disproportionate impact on large urban centres, including effectively ‘levelling down’ London, could reduce regional inequality. This is in contrast with the rhetorical focus on ‘levelling up’.

UK Regional Innovation Pilots

The Levelling Up White Paper detailed £100 million in funding to pilot three accelerators – in Glasgow, the West Midlands and Greater Manchester – within a broader goal to increase public investment in research and development outside the Greater South East by 40 per cent by 2030.
Plans to create three UK “innovation accelerators” give city-regions and their universities the chance to foster inclusive innovation locally.
Responses from universities suggest that it is important to help local firms to build their innovation capacity and to increase demand for higher skills, leading to higher productivity and wages.

Labour market statistics

For the UK, early estimates for April 2022 indicate that the number of payrolled employees rose by 4.2% compared with April 2021, a rise of 1,187,000 employees. There were 121,000 (+0.4%) more people in payrolled employment in April 2022 when compared with March 2022.
Nationally, the number of job vacancies in February to April 2022 rose to a new record of 1,295,000; an increase of 33,700 from the previous quarter and an increase of 499,300 from the pre-coronavirus pandemic level in January to March 2020.
For the three months ending March 2022, the West Midlands region employment rate (aged 16-64 years) was 76.1%, above the UK rate of 75.7%. Since the three months ending December 2021, the West Midlands employment rate increased by 1pp, while the UK increased by only 0.1pp.
For the three months ending in March 2022, the West Midlands region unemployment rate (aged 16 years and over) was 4.6%, which has decreased by 0.4pp since the previous quarter and a decrease of 1.5pp from the previous year. The UK unemployment rate was 3.7%, a decrease of 0.3pp from the previous quarter, and a 1.2pp decrease when compared to the previous year.
For the three months ending March 2022, the West Midlands region economic inactivity rate (aged 16-64 years) was 20.3% – a joint record low and also below the UK at 21.4%.
There were 153,605 claimants in the WMCA (3 LEP) area in March 2022. Since March 2022, there has been a decrease of 1.7% (-2,660) claimants in the WMCA (3 LEP) area, while the UK decreased by 3.7%.
There were 25,725 youth claimants in the WMCA (3 LEP) area in April 2022. Since March 2022, there was a decrease of 1.8% (-480) youth claimants in the WMCA (3 LEP) area, while the UK decreased by 4.7%. When compared to April 2021, the number of youth claimants has decreased by 38.2% (-15,910) in the WMCA (3 LEP) area, with the UK decreasing by 47.9% over the same period.
Nationally, the number of job vacancies in February to April 2022 rose to a new record of 1,295,000; an increase of 33,700 from the previous quarter and an increase of 499,300 from the pre-coronavirus pandemic level in January to March 2020. In February to April 2022 the quarterly rate of growth fell for the ninth consecutive period; but remains positive at 2.7%. In January to March 2022 the ratio of unemployed people to every vacancy remained at 1.0, but for the first time, the number of vacancies was larger than the number of people unemployed.
There were 130,325 unique job postings across the WMCA 3 LEP geography in April 2022; this is 11.5% fewer than in March. All 19 local authority areas bar Stratford-on-Avon (+5%) recorded a negative change compared to the previous month. Birmingham was hardest hit (-16%), but closely followed by Lichfield, Sandwell, Rugby and East Staffordshire who all recorded a double-digit contraction.

Over 50s in the labour market

With the number of vacancies nationally outstripping the numbers of unemployed people and many employers facing recruitment challenges, some labour market commentators argue that greater policy emphasis needs to be placed on measures to boost labour supply. Increasing participation amongst older workers is one possible focus.
The West Midlands 7-Met area’s age structure is younger than that for England but the relative sizes of different age cohorts in the WMCA area follow the national pattern, with a large cohort aged in their 50s, followed by a smaller cohort aged in their early and mid-40s. Employers are less likely to train older than younger workers.
The over 50s face a range of barriers in accessing learning and employment. A lack of up-to-date skills and qualifications hampers some (but by no means all) older job seekers. Some over 50s feel overqualified for jobs on offer.
Older workers take longer to return to employment after becoming unemployed than younger people. The over 50s are also more likely to lack experience of recent job moves and job search.
Although employers cannot ask for a date of birth on a job application unless there are specific age requirements for the job in question, a substantial proportion of the over 50s perceive age discrimination as a factor in their difficulties in finding employment.
Flexible working can help older people stay in employment for longer; it may help fit around caring responsibilities and health problems, which are major reasons for early retirement.

Commonwealth Games (CWG)

With the start of Birmingham 2022 CWG two months away it is timely to note that while the recent focus has been on test events at the stadia to be used, the CWG is not an end in itself. Rather, it marks Birmingham’s transition to hosting larger scale, higher-profile events. As indicated clearly in the Birmingham 2022 Legacy plan and the official Games website, the intention is to ‘win future event bids’ and to ‘use the Games to send a clear message that Birmingham is open for businesses’.
Birmingham 2022 CWG has introduced the first-ever Social Values Charter for the Commonwealth Games, leading to suppliers making commitments that support local businesses and local people. This can set the bar for future event organisers.

Economic activity and social change in the UK, real-time indicators

Online job adverts data from Adzuna across all regions decreased between the 6^th and 13^th May 2022. The West Midlands online job adverts decreased by 2.4% and on the 13^th May 2022, it was at 139.2% of the average level in February 2020. All 12 regions were above their February 2020 levels, varying from; 114.7% in Wales to 163.7% in the North East.
Google mobility data shows that as of the 13^th May 2022, visits to retail and recreation, transit stations and workplaces had not yet returned to pre-coronavirus levels.
The System Average Price (SAP) of gas fell by 46% in the week to 15^th May 2022 (from the previous week), 7% lower than the equivalent period from the previous year but 158% higher when compared to the pre-Coronavirus baseline.
Results from Wave 56 of the Business Insights and Conditions Survey (BICS) show that in relation to international trading, excluding “not sure” responses, 50.2% of responding West Midlands businesses reported “exporting as normal” in April 2022 when compared to April 2021. 15.7% of West Midlands businesses reported “exporting, but less than normal”, 15.7% reported “exporting more than normal” and 1.0% reported that the business had “not been able to export in the last month”.
8% of West Midlands businesses reported experiencing global supply chain disruption in April 2022.
8% of West Midlands businesses reported the main concern for business was “inflation of goods and services prices” in May 2022.
4% of responding West Midland businesses reported that they were currently experiencing a shortage of workers. Due to the shortage of workers, 63.8% of West Midlands businesses reported employees were then working increased hours.
In terms of their financial situation, since November 2021, the proportion of adults who think they would not be able to save any money in the next 12 months has gradually increased; 43% in the latest period (27^th April to 8^th May 2022) compared with 34% in November 2021.
56% of adults who reported their cost of living had increased were most worried about an increase in their gas and electricity bills.

Covid-19 infections

Covid-19 case numbers across Europe have continued to fall in all countries, except Portugal which has seen a rise once again.
In England, the estimated number of people testing positive for COVID-19 was 1,037,400 (95% credible interval: 981,800 to 1,091,700) in the week ending 13 May 2022, equating to 1.90% of the population or around 1 in 55 people.

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.