This week we have seen continuing unrest in the USA as the administration changes, increasing infection rates globally and turmoil as Brexit impacts continue to unfold in the short-term. Below is a summary of the key issues this week which influence and shape the policy issues in the region.
- In the USA thousands of Trump supporters organised and rallied at Capitol Hill; many were visibly armed. These protesters aimed to prevent the confirmation of Joe Biden being democratically elected to the presidential office. Donald Trump became the first President to be impeached a second time.
- Deaths continue to rise globally, nationally and regionally, with Covid-19 deaths accounting for about a third of deaths in the West Midlands. Hospitalisations continue to accelerate, along with patients on ventilators. The 13th March recorded the highest COVID deaths so far at 1,564.
- While the economic fallout will not be as severe as it was with the first lockdowns, the surge in virus cases will weigh on activity in 2021 Q1 according to Capital Economics. Vaccine rollouts should provide a boost to the global recovery, but not until the second half of the year. Output & activity indicators suggest that the world economy lost momentum throughout 2020 Q4. Consumer spending weakened in 2020 Q4 in most economies, with euro-zone retail faring especially badly.
- As the UK has now left the EU, the VAT threshold for the UK has gone this has implications for the tax burden on British buyers. Due to the new frictions with regards to VAT, numerous companies announced that they would be ceasing trade within the UK in the short-term.
- Make UK/ PwC suggests:
- One-third of companies believe investment prospects for the UK will decrease outside the EU.
- The ability of the UK to attract international talent may fall.
- Customs delays and increased costs of regulation are amongst the biggest risks to supply chains.
- Fears of national and local lockdowns are seen as the second biggest risk.
- A quarter of companies are looking to re-shore overseas activities.
- Investment in new products, digital technologies and training build resilience.
- Productivity and recruitment are likely to pick up.
- Andy Street, Mayor of the West Midlands, wrote to business leaders to help them access information and support that is available. This site has been designed to act as one central resource where businesses will be able to access tailored support, advice and upcoming events.
- The West Midlands Business Activity Index has increased from 50.5 in November 2020 to 54.2 in December 2020. The increase in business activity was linked to the reopening of more companies following the second lockdown ending and clients stockpiling in preparation for Brexit. The overall UK Business Activity Index increased from 49.0 in November 2020 to 50.4 in December 2020. Out of the twelve UK regions, the West Midlands had the highest Business Activity Index in December 2020.
- Companies in the West Midlands remain confident about a rise in output in the next 12 months with the Future Activity Index at 73.6 in December 2020; this five-month high in optimism from businesses stems from the news of an approved COVID-19 vaccine and also predictions of new contract wins.
- For West Midlands businesses that indicated they had sites that had paused or ceased trading:
- 36.0% stated they it was not financially viable to keep open, 57.5% were required to temporarily close due to lockdown regulations and 19.0% reported insufficient footfall or customer interest.
- 41.2% of trading businesses in the West Midlands reported profits had decreased by at least 20%.
- In the West Midlands, 66.9% of businesses had high confidence in surviving over the next three months, whilst 23.2% had moderate confidence in surviving, and 3.3% had low confidence. The remaining 5.8% were not sure.
- Regionally footfall continues to decrease and has decreased 10pp on last week.
Policy Implications of Brexit
Weakened supply chains; trade with N Ireland, an ongoing trickle of impacts businesses not prepared for; labour market constraints
- 0% of West Midlands businesses indicated that they were intending to make changes to supply chains in preparation for the end of the EU transition period, while 50.3% of West Midlands businesses reported they were not.
- Northern Ireland trading is at risk both as a through route for trade and also companies maintaining markets. Rules of origin are still a problem and some companies are suspending EU sales to avoid import tariff after finishing products in the EU.
- Companies who were prepared and brought in additional support over Christmas are coping okay. This may imply that over time companies will adapt. Or it could be a slow puncture as orders slowly decline.
- Red tape on the EU side of the deal is impacting on demand, with EU customers not prepared to take on the additional cost of regulation on their side. Logistics companies are cancelling or charging 2.5 times the original cost; there is a sense of UK voted for it and therefore the UK has to deal with it.
- Alignment of the qualifications is still an issue, particularly in health and social care, and there is now an impact on visa applications.
- It is estimated 20,000 people (non-Irish EU nationals) are still to apply for settlement in Birmingham alone.
- A Nuffield Trust looks report on “Understanding the impact of Brexit on health in the UK” concludes that the UK’s changing international relations will mean that protecting and improving health will remain an unpredictable task.
- A Work Foundation report highlights three main groups of immigrants affected by immigration changes: those in low-skilled work earning below the required salary threshold; those in low-skilled work, but with higher salaries; and those in high-skilled work, but with low incomes. The Resolution Foundation highlights sectors that are most reliant on migrant labour may need to consider significant adjustments to their size and how they operate in the years ahead.
Policy Implications of COVID:
Impending redundancy decisions; business sentiment very low; demand for help for self-employed, emergency loans extension, Directors Income Support Scheme; help for recently self-employed, and emergency loans extension; use of alternative funding such as pension fund investment; what’s the plan B for COVID?
- There are inconsistencies in school approaches regarding which pupils can attend. This is having an inconsistent impact on employees and businesses.
- Businesses are signalling that they will be making large scale redundancy decisions, and business sentiment is now very low. The ONS reports that 14.0% of responding businesses in the West Midlands expect redundancies to happen within the next two weeks. 21.1% expect redundancies to occur between two weeks and one month and 62.3% expect redundancies to occur in the next one to three months. 2% of businesses in the West Midlands reported that they expect closing the sites will cause permanent redundancies and 26.9% reported the workforce will relocate.
- Businesses are asking ‘What is Plan B on Covid?’ ‘What does it look like?’ and ‘Can we have a more stable longer term 12-month plan?’ This will help them plan for recovery and in the long term adapting to Covid conditions.
- The Federation of Small Businesses (FSB) Quarterly Small Business Index (SBI) shows confidence at second lowest ebb in report’s ten-year history. At least 20,000 Small Businesses in the West Midlands are set to fold without further help. One in five firms reduced headcounts in the three months to December 2020.
- The FSB have asked for a number of policy actions including help for self-employed, emergency loans extension, Directors Income Support Scheme; help for recently self-employed, and emergency loans extension.
- Crisis estimates that there will be 270,800 homeless by 2040 if the current trajectory is allowed to play out unchecked. With a comprehensive package of policies, the charity argues, including the further roll out and support form Housing First and more council homes, homelessness can be radically reduced and even eliminated.
- UK Music have released a report calling on the government to give greater reassurance and support for live music to restart when it is safe to do so, with recommendations that could be rolled out across the entire performing arts sector. The request that the government validates ways for venues to make themselves safe including cleaning, ventilation, and testing, and an extension of VAT relief on tickets.
- Citizens Advice warns that the ban on evictions, which expired on Monday 11th January, could lead to a swathe of private renters evicted from their homes due to growing arrears.
- PwC has shown that for the first time in the 21st century, the population of London could decline this year as fewer graduates move to the city thanks to the growth in remote opportunities and people seek more living space. The Centre for Progressive Policy calls for governments to work with pension funds and insurers to develop a pipeline of investable infrastructure projects.
- 73% of adults in the West Midlands reported they were very or somewhat worried about the effect COVID-19 was having on their life, matching the Great Britain average. In the West Midlands:
- Life satisfaction was 6.9 (score out of 10) (6.7 GB average).
- Worthwhile feelings was 7.4 (7.2 GB average).
- Happiness was 7.3 for adults (6.9 GB average).
- Anxiousness was recorded at 4.0 for adults (matching the GB average).
- 22% of adults think it could more than a year to return back to normal (20% GB average).
Policy implications of Inequality impacts
Increasing inequality; young and minority groups more affected; higher-skilled more resilient.
- Regional inequality is not increasing for incomes but is increasing for wealth. Local inequalities are significant; former industrial areas in the Midlands and North and coastal towns have not been falling behind but have become poorer.
- The West Midlands has a higher share of the population in school (and pre-school) age groups than across England as a whole so lockdown changes have a large impact. The West Midlands – and especially Birmingham – has more pupils on free school meals than the national average and these pupils are affected more by the lockdown. In the first lockdown in 2020, time spent on educational activities amongst primary school children fell by a quarter. The decrease in time spent on such activities when schools were closed was most pronounced for those from the poorest families.
- The COVID-19 crisis has exacerbated labour market inequalities between graduates and non-graduates – and despite progress in raising qualification levels, with a less qualified workforce than nationally, the West Midlands has a larger share of non-graduates. Prior to the COVID-19 crisis, 71% of employees without a degree either worked in a sector that was locked down or had a job that could not easily be done remotely.
- Minority ethnic groups have suffered disproportionately from disruption to earnings because of their relative concentration in sectors suffering lockdown and/or being amongst the self-employed, which have been at particular risk of losing hours and earnings during the COVID-19 crisis.
- Deaths from COVID-19 are even more socially graded than non COVID-19 deaths, so exacerbating existing inequalities in deaths by local area deprivation.
- Several local authorities in the West Midlands emerge as vulnerable on ‘Health’ and ‘Families’ dimensions. Walsall is in the fifth (i.e. most vulnerable) quartile of local areas on both the Health Index, while Birmingham, Sandwell and Wolverhampton are in the fifth quartile on one index and the fourth quartile on the other.
- Before the COVID-19 crisis pensioners were becoming relatively better off. During 2020 the majority of retired people reported no financial impact from the COVID-19 crisis and recession, while a fifth of them reported that their financial situation improved. Over the longer-term, this generation has also seen the benefit of defined benefit pension schemes (which are now much less prevalent) and from real house price rises – and the recent movement in the housing market has been concentrated disproportionately amongst higher value properties.
- Young people have suffered the brunt of job and income loss. Analysis shows that by September/October 2020, young people aged 16–25 years were more than twice as likely as older employees to have suffered job loss during the COVID-19 crisis. A majority of the group had seen their earnings fall. These disproportionate negative impacts occurred in the context of average earnings among employees currently in their 30s (who were largely in their 20s when the 2008 recession hit) being 7% lower in real terms in 2019 than they had been for their predecessors at the same age in 2008. The generational divide is of particular significance in the West Midlands, given the youthful age structure of its population.
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 has 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.