West Midlands Impact Monitor – 6 April 2023

This is the 100^th edition of the Monitor!

The first one was published in late March 2020. At that time, PMI (Purchasing Managers Index) had dropped to 37.1, 1 in 3 businesses had closed due to regulation, Jaguar Land Rover had shut its production plants, and the numbers of calls for business support were increasing rapidly. The forecasts highlighted in that first report did not predict the length and severity of the impacts. That first monitor made several recommendations for policy, many of which have been implemented since. Just over three years on:

Cost of living increases and impacts

Strikes are set to continue for teachers, passport workers, junior doctors, airport workers, tube drivers, university staff and civil servants.
In the latest period, just over one in three (36%) adults reported that industrial action was an important issue, while one in four (25%) adults had been affected by industrial action in the last month.
When asked about the important issues facing the UK today, the most reported issues continue to be the cost of living (91%), the NHS (84%), the economy (71%), and climate change and the environment (57%).

Energy

Oil prices are on the rise again after the OPEC oil-producing countries announced they would be making cuts to output.
17% of businesses expect energy prices will be their main concern for April 2023; slightly lower than the 19% of businesses in March 2023.
The System Average Price of gas is 55% lower than the equivalent period of 2022 and 79% below the peak level observed on 28 August 2022; this is the tenth consecutive week-on-week decrease in price.
Under the current cap, the average household from every local authority within the West Midlands Combined Authority (WMCA) would be considered as being within fuel poverty as they spend more than 10% of their income on their energy bills.

Economy

UK gross domestic product (GDP) is estimated to have increased by 0.1% in Quarter 4 (Oct to Dec) 2022, revised from a first estimate of no growth.
In output terms, the services sector grew by 0.1% and the construction sector grew by 1.3%, while the production sector growth was flat in Quarter 4 2022.
The level of real GDP in Quarter 4 2022 is now estimated to be 0.6% below where it was pre-COVID-19 in Quarter 4 2019, revised upwards from the previous estimate of 0.8% below.
Since 2021, the West Midlands region’s total value in goods exports increased by nearly £4.4bn (+17.1%) to £29.9bn in 2022. The overall value of UK trade in goods exports increased at a greater rate, by 19.2% (to £371.5bn in 2022).
Since 2021, the value of the West Midlands region’ imports increased by nearly £8.7bn (+25.5%) to £42.6bn in 2022. The UK-wide total imports increased by 37.1% to £632.3bn.
The West Midlands had a trade-in goods deficit of £12.7bn in 2022.
Business investment fell by 0.2% in Quarter 4 (Oct to Dec) 2022, revised down from the provisional estimate of 4.8% growth. The level of business investment in Quarter 4 2022 was 2.2% below where it was in Quarter 4 2019, the quarter before the COVID-19 pandemic.
93% of companies say supply chain pressures are set to continue in the year ahead; building resilience is highly important to business success.
80% of manufacturers say that supply chain vulnerabilities are a significant strategic risk for both 2023 and 2024. Digital technologies can provide solutions for companies to become more responsive when faced with supply chain disruptions.
The biggest drivers of supply chain disruption are all related to increased costs with almost three-quarters of companies saying higher raw material prices were the biggest challenge (71%), followed by higher transportation and energy costs (69% and 68% respectively).
Re-shoring of suppliers continues apace as supply chain volatility becomes permanent 40% of manufacturers have re-shored suppliers in the last year
Make UK latest – Output and orders indicate rebounding activity; UK orders lead growth with both domestic and export orders improved; Price growth accelerates but margins remain in contraction; Demand for employees remains strong and investment intentions pick up even before Budget measures; Business confidence improves but caution remains that worst may not be over; Industry forecast to contract by -3.3% in 2023, 0.8% growth in 2024
The UK government’s net expenditure on research and development (Research & Development) (excluding EU R&D budget contributions) remained at £14.0 billion in 2021.
Total net expenditure on R&D (including EU R&D budget contributions) decreased by £803 million (5.3%), from £15.3 billion in 2020 to £14.5 billion in 2021.
As of the 31^stof March, both Coventry and Warwickshire and Black Country LEPs have shut down, and Greater Birmingham and Solihull LEP will continue to remain open till the end of the financial year. The services provided by the LEPs will now be provided by Business Growth West Midlands, launched on the 1^st of April.
Data released by the Insolvency Service at the end of January shows that firm insolvencies, or bankruptcies, in England and Wales reached the highest level since 2009.
Lower-skilled, lower-income households in more deprived communities are less resilient than wealthier households and tend to experience higher unemployment in times of recession. There are fewer opportunities for re-employment in new firms or growth industries, less disposable income for re-location and a lower level of assets and savings to draw on to carry them over into the next upturn. High insolvency rates correlate with increased social welfare benefits costs for governments.
The West Midlands is most strongly affected by insolvency, with low-income and medium-income groups experiencing income loss of more than 1.5%.
Total Innovate UK funding for each region, the most goes to London and the South East, followed by the West Midlands receiving the dominant shares, with Manufacturing receiving the dominant share (almost three times the investment in Health).
The West Midlands has the most concentrated portfolio of all the regions. 81% of West Midlands funding is in the Manufacturing theme and less than 5% in two of the remaining three areas.

Labour Market and Employment

The Resolution Foundation found that the group most likely to benefit from the new free 30 hours of childcare announced in the Budget are middle-income groups, partly because UC claimants already get high levels of support with regard to childcare fees. The Office for Budget Responsibility believe this will bring greater flexibility for working parents, however much of this will still rest on the government’s ability to improve childcare supply, otherwise, prices will remain high and unaffordable for many parents.
While over a quarter of full-time higher education students were estimated to be working during term-time in the early 1990s, evidence from the National Union of Students (NUS) and the Trades Union Congress suggests that the number of full-time students in employment increased significantly (by approximately 55%) between 1996 and 2006.
The Student Income and Expenditure Survey (SIES)revealed that 52% of full-time students engaged in some form of paid work during term-time in the academic year 2014/15. On average, these students earned approximately £3,300 from paid employment.
Graduates, on average, accumulate around £45,000 in debt, but most are unlikely to repay their loans in full, with the total amount of unpaid debt predicted to reach around £560 billion by 2050.

Business cases

City-REDI carried out a review of business cases. Of 805 projects reviewed that were funded only 11.7% had publicly available business cases. Of those, 44.7% did not mention additionality: a core part of the Green Book guidance on assessing bids. Of all the 94 bids only four had covered all additionality factors.
There is a lack of skills and expertise in developing business cases both in central government and local and regional government.
In a competitive environment, there is a lack of learning from best practices and good examples or transparency in approach. This is further impacted by the lack of evaluation and reflective learning in the system.

Regional productivity levers

City-REDI research shows that the UK’s regional institutions are currently lacking the decision-making powers, budgetary capacity and institutional capabilities to make transformative policy interventions in the drivers of productivity. Of course, outcomes also depend on the interaction of contextual factors, including past economic performance, economic geography and local political economy.

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.

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.