WM REDI has been tasked with providing an up to date monitor of the current COVID-19 economic impacts, on a weekly basis. These reports will help regional partners to shape responses and interventions to boost the region’s resilience so that it can thrive going forward. Each week the focus of the report relates to research and evidence published that week.
This week has seen a number of major statistical releases which are reported in detail – including GDP, labour market statistics and claimants. All the releases paint a difficult picture. This was expected based on previous monitors and the direction of travel in business feedback.
- The UK has officially entered a recession. Data released this week showed the UK economy declined 20.4% in Q2, which is the worst slump on record and perhaps signifies the worst economic crisis and reduction in national wealth since the South Sea Bubble crisis of 1720.
- The construction sector was the sector most hurt by lockdown when construction sites were forced to close.
- Services output fell by 19.9%
- Production output fell by 16.9%,
- Construction output contracted by 35.0%
- However, upon reopening, the economy expanded in June. GDP rose by 8.7% with a noticeable rise in sectoral output in accommodation and food services, although this was from a low baseline.
- The causes of this significant historic macroeconomic catastrophe in the face of the COVID-19 pandemic, whether failure to lockdown earlier, uncertainty from the government on correct interventions, or the actual decision to lockdown, will continue for a long time.
- In the West Midlands, as of 7 August, the only place in the region where infection rates were of concern was Sandwell. However, this outbreak has seen a significant reduction in the last week. And the level of infections in the region remains relatively low.
- Latest labour market statistics were released this week and although they lag the reality on the ground they present a stark decline in the number of employees on payrolls and a significant reduction in hours worked. This is evidence of the continuing impact of COVID-19 on the labour market.
- This week unemployment data was released by the ONS. Almost three-quarters of a million jobs have been dropped from company payrolls since the start of the COVID-19 pandemic, but the unemployment figure of 3.9% remains relatively unchanged.
- The indicators for July 2020 suggest the number of UK employees on payrolls was down by 730,000 compared to March 2020.
- The data showed the total number of weekly hours worked between April and June 2020 was down a record 203.3 million hours on the previous year and down 191.3 million hours on the previous quarter.
- Analysis from ONS indicates that for the UK, employment is weakening and unemployment remains unchanged due to the increase in economic inactivity with people out of work but not looking for work. However, this trend cannot be seen directly for the West Midlands.
- The furlough scheme has been very successful in preserving millions of jobs. However, with firms continuing to face significant increases in costs, reduced demand and reduced cash reserves as we have seen in previous monitors, unemployment is likely to accelerate as the end of the intervention draws near. A significant spike in job losses on the back of the worst quarter’s GDP recorded will be another major drag on the recovery, and further stifle consumer spend.
- Levels of furlough are higher in the West Midlands than in many other areas with levels at the higher end of the range across most Local Authorities. Combining claimant count, Coronavirus Job Retention Scheme and Self-Employment Income Support Scheme levels of take-up are higher in the West Midlands than many other areas but not as high as in London and parts of North Yorkshire and Cumbria. Total funding provided to West Midlands businesses represents 8% of the national total, in line with the relative size of the West Midlands’s business population (8%).
- The Coronavirus Job Retention Scheme still remains the favoured government support scheme with 77% of businesses that are currently trading having applied for this scheme, rising to 79% for businesses that have temporarily paused or closed.
- Eat out to help out has been used more than 10.5 million times last Monday to Wednesday, with more than 83,000 venues signed up. HM Treasury has estimated the average claim was around £5, meaning the cost of the scheme is £50million so far.
- Businesses are reporting that “Eat out to help out” has potentially shifted the weekend clientele to the early week. Therefore the people benefiting would have gone out anyway, and many of those it is aimed at encouraging remaining at home. This has the effect of not increasing overall spend despite a significant investment from the government.
- The Chamber survey highlights:
- In comparison to the previous month, 33% of businesses witnessed a fall in UK revenue (with 25% citing a significant decrease) with 31% recording an increase in domestic revenue.
- 57% of firms saw a drop in international revenue (with 31% suggesting it was significant) and 31% reported an increase in revenue generated overseas.
- 53% had also seen a decline in cash reserves (with 19% noting an uplift compared to the previous month).
- 30% of businesses expected their cash reserves to cover their trading activity for one to three months, 8% for less than one month and 6% had no cash reserves at all.
- The number of claimants aged 16 years and over has increased between June 2020 and July 2020 (+2.9%), although less than the UK (+3.5%). However, compared to March 2020, the number has increased significantly (+78.8% WMCA, 111.2% UK).
- The number of WMCA young claimants has increased over the last month (+2.8%) although less than the UK (3.9%). However, compared to March 2020, the number has increased significantly (+88.8% WMCA, 122.4% UK). The top 9 wards that had the highest number of claimants as a percentage of residents aged 16+ in July 2020 are based in Birmingham, with the top three being Birchfield at 17.5%, Lozells at 17.4% and Handsworth at 16.8%.
- New business shocks and opportunities this week include:
- Coventry Building Society reporting a loss of 2/3 of profits.
- JLR making a pre-tax loss of £400m.
- Mogan Sindall losses of £40m so far.
- The Hippodrome has cancelled all shows until Feb 2021.
- Drayton Manor filed for administration but have been bought by Looping Group.
- Coventry industrial Estate has achieved record rents in two recent lettings.
- Clarilis, a regional Tech company has raised a further £6m in investment.
The weekly monitor brings together data and intelligence from the WM REDI partnership into one single source which can be shared and utilised in planning and responding to the challenge of the virus. This is a rapid review of the issues. It is not intended to be a comprehensive assessment but rather a practical report which places emphasis on emerging issues and the best data and intelligence we have to date.
The monitor is feeding into the regional recovery planning that can help the regional economy bounce back and quickly move forward once lockdown restrictions start to be lifted.
The work is being endorsed by political and business leaders a task force of experts are being set up through WM REDI partners to better understand the impact of the lockdown and what measures will be needed to get the economy moving again.
City-REDI / WM REDI have developed a resource page with all of our analysis of 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 that here.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.
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