Rishi Sunak is now UK Prime Minister. Concerns about inflation remain paramount for businesses, households and individuals. Russia has continued its targeted attack on Ukrainian energy supplies since last Monday, with an estimated 1.5m households now without electricity. Almost a third of Ukraine’s power stations and other energy-generating facilities having been destroyed in the attacks again hitting the energy supply in Europe, with both short-term and potential long-term impacts.
Pressing social and political issues
- Ipsos has run a survey amongst 20,000 people across 29 countries to gauge what the public believes are the most pressing social and political issues. 4 in 10 surveyed thought inflation was the most significant, making it the 6th month in a row that this had been the most prominent issues for most people.
- 36% of respondents believe their country is heading in the right direction when it comes to solving major issues of concern.
National and regional developments
- The UK has its 3rd government within a year, following the resignation of Prime Minister Liz Truss. Rishi Sunak is now Prime Minister.
- According to many foreign newspapers, the reputation of the UK as stable nation has been destroyed.
- Following the ‘mini-budget’ there was an estimated up to £72bn black hole in public finances. When Jeremy Hunt became Chancellor, he decided to scrap a number of expensive policies within the ‘mini-budget’ in an effort to reduce the deficit.
- The reversals and changes announced have reduced the shortfall to around £39.7bn, but there will likely be austerity (spending cuts) introduced in the future. The IFS forecasts that to help close the funding gap from the ‘mini budget’ the government would have to reduce day-to-day spending on public services (outside of the NHS and defence) by 15%.
- The University of Glasgow has found that austerity led to twice as many excess deaths as had been previously thought. Cuts to public services and living standards across Britain from 2010 to 2019 contributed to 335,000 excess deaths. There were overall falls in UK life expectancy between 2014 and 2018.
- Between, 2010/11 and 2020/21 councils have faced dramatic decreases in their spending power. Government funded spending power across England fell -52.3%. Given that this was the largest funding stream for local authorities, it had a large impact on their spending power. Birmingham has had budget cuts of 36.3%, Wolverhampton 32.8%, Sandwell 32.1%; the smallest cut was Warwickshire at 13.4%.
- Royal Mail has announced plans to make up to 6,000 people redundant by next August, blaming ongoing strike action and rising losses at the business. Royal Mail has said it plans to reduce its overall headcount by 10,000. 6,000 job losses will be through redundancies, whilst an additional 4,000 will be through natural attrition.
- University of Birmingham analysis of the financial resilience of the largest West Midlands manufacturers on the basis of their current ratio finds that 20 of these firms are considered to be high-risk. Cumulatively these firms have a workforce of 105,320. 12 firms are medium-risk and employ 34,757 individuals. There are 18 low-risk firms that together employ 68,675 people. These firms are considered relatively healthy in terms of their financial resilience; thus, we consider these jobs relatively secure.
- 8% of West Midlands businesses reported that turnover in September 2022 had increased when compared to the previous calendar month. 39.0% reported turnover had stayed the same. 22.7% had reported that turnover had decreased.
- Where applicable and excluding the unsure responses, 43.2% of West Midlands businesses reported the prices of goods or services brought in September 2022 when compared to the previous month had increased. 40.4% reported that prices had stayed the same and 1.1% of West Midlands businesses reported that prices of goods or services brought had decreased.
- 8% of West Midlands businesses reported in September 2022 when compared to the previous month, that the number of employees increased, 57.4% reported the number of employees had stayed the same and 12.4% of West Midlands businesses reported the number of employees had decreased.
- Cornwall Insight forecasts that by April 2023, the average price for gas could rise to 30.8p per/kwh in April and 8p per/kwh for electricity. Taking this as the high case, this would raise the England average annual household energy bill to £6,628. This would be a 166% increase in energy bills compared to under the cap, and a 482% increase on the £1,138 price cap in April 2021. The average annual household energy bill for the WMCA area will be £7,255 based on current usage and standing charges. This is a 179% increase in the average annual bill compared to under the price cap, and a 538% increase from the England average £1,138 price cap in April 2021. A large part of the reason that there is expected to be a greater increase in the energy bill for the WMCA is due to higher electricity use, which is more expensive per/kwh than gas
- The current average yearly earnings for the WMCA is £29,737 annually, the average WMCA energy bill under the cap is £2,597, this is equivalent to 8.7% of current earnings. If the cap is removed in April 2023, and energy bills increase to the low case of £3,893, this would be equivalent to 13.1% of annual earnings. If energy bills rise to the central case of £6,469, then energy bills as a proportion of earnings would be equivalent to 21.8%. In the high case of £7,225, this would be equivalent to 24.4% of earnings. When the average England cap was £1,138 in April 2021, this was equivalent to 3.8% of earnings.
- 8% of West Midlands businesses reported production had been affected by recent increases in energy prices, 17.9% of West Midlands businesses reported suppliers had been affected and 22.7% of West Midlands businesses reported that both production and suppliers were affected. 24.6% of West Midlands businesses reported to not being affected by the recent increases in energy prices.
- 43% of adults who pay energy bills said they found it very or somewhat difficult to afford them in the latest period (44% in the previous period).
- Only 4% of households in the UK have renewable energy installed, whereas only 7% of households in Birmingham have renewable energy capability. Studies show that several barriers, such as high costs, lack of public acceptance and limited knowledge and experience relating to the technology, are hindering the adoption of low-carbon technology.
Birmingham Economic Review
- Businesses report pressure to raise prices: The GBCC’s Q2 Quarterly Business Report sees record levels of businesses reporting pressure to raise prices, driven by energy costs and staff shortages.
- The cost-of-living crisis bites: as the ONS report that inflation hits 9.9% in August 2022, driven by price increases in food, energy and fuel.
- The UK economy struggles to recover from the pandemic: Upwardly revised ONS estimates show the UK economy grew by 0.2% in Q2 2022 rather than contracted by 0.1% as previously thought. However, the economy was still 0.2% smaller than pre-pandemic (Q4 2019) and is the only G7 economy to not have recovered yet.
- WMCA (3 LEP) area: there were 1.88m jobs in 2021. This represents an increase of 1.4% (+26,000 jobs), below the national rate of increase (+3.1%). In 2021, there were nearly 1.29m full-time employees and 594,000 part-time employees in the WMCA (3 LEP) area. When compared to 2020, full-time employee jobs increased by 1.2% (England +3.6%) while part-time increased by 1.4% (England +2.1%).
- WMCA (3 LEP) area: the business, professional and financial services sector accounts for the highest percentage of jobs at 18.6% (approximately 349,150 jobs); this is also the highest sector nationally at 21.6% in 2021. This sector’s jobs decreased by 6.0% (-22,195) between 2020 and 2021.
- Average full-time resident annual earnings for the WMCA (3 LEP) rose by £1,857 (+6.1%) since April 2021 to reach £32,417 in April 2022, the UK increased by 5.7%. The WMCA (3 LEP) workplace earnings are at 98.2% of the UK average, with the average resident earning £583 less than the UK average of £33,000.
- Average full-time workplace annual earnings for the WMCA (3 LEP) rose by £1,349 (+4.4%) since April 2021 to reach £31,794 in April 2022, the UK increased by 5.7%. The WMCA (3 LEP) workplace earnings are at 96.3% of the UK average, with the average workplace earning £1,206 less than the UK average of £33,000.
- WMCA (3 LEP) total Gross Disposable Household Income increased from £74.4bn in 2019 to £75.2bn in 2020. This equates to a 1.1% (+£785m) annual increase, above UK-wide growth of 0.3%.
- WMCA (3 LEP) GDHI per head has increased from £17,743 in 2019 to £17,841 in 2020. This equates to a 0.6% (+£98) increase, above the UK-wide decline of 0.2%. A shortfall of £3,599 to the UK figure (£21,440).
- WM 7 Met. total GDHI increased from £47.3bn in 2019 to £48.1bn in 2020, an increase of 1.8% (+£836m).
- WM 7 Met. GDHI per head increased from £16,147 to £16,369 between 2020 and 2021, an increase of 1.4% (+£222). This is in contrast to a small decrease across the UK overall (-0.2%).
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.