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 is based on research and evidence published that week.
In general, the economic indicators are getting worse: furlough continues, youth claimants are going up, as is the use of food banks and redundancy notifications. Some economic indicators are showing an uptick such as PMI but OBR has released forecasts that predict a 12.4% contraction and borrowing at a peacetime high.
- The ONS has released GDP stats, and UK GDP grew 1.8% in May but was still 24.5% below its level in February, before the plunge in economic output when the pandemic struck. Manufacturing and house building indicated some signs of recovery as some businesses saw staff return to work during May, but whilst retail sales rose, it was mostly confined to online shopping, due to restrictions on non-essential retail still being in place.
- The headline NatWest West Midlands Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – surged from 27.9 in May to 50.4 in June. The Export Climate Index rose steadily from 35.9 in May to 48.0 in June which is the highest since January
- The Office for Budget Responsibility (OBR) said the economy was on course to shrink by 12.4% in 2020, with borrowing set to rise to a peacetime high. OBR has released 3 scenarios:
- Upside: GDP down 10.6% this year; pre-virus peak by 21Q1; no long-term scarring.
- Central: GDP down 12.4% this year; pre-virus peak by 22Q4; GDP down 3% at the end of the forecast period.
- Downside: GDP down 14.3% this year; pre-virus peak by 24Q3; GDP down 6% at the end of the forecast period.
- The fiscal watchdog warned that economy would not get back to its pre-crisis size until the end of 2022, while unemployment was likely to rise to a record 12% by the end of this year, falling back to 10.1% in 2021.
- The Academy of Medical Science published a recent report which highlights a reasonable worst-case scenario for health in the winter, including a resurgence of COVID-19 which might be greater than that seen in the spring.
- The Department for International Trade’s (DIT) latest yearly figures released this week for 2019-20 indicates that the West Midlands has turned in a resilient FDI performance in the face of Brexit uncertainties and mounting global economic headwinds. However, going forward there are considerable challenges from Brexit and Covid-19 which will affect the next data release.
- There are serious concerns over the number of HR1s (a form businesses fill in to notify HMRC that they are making redundancies of over 20 staff) which are now rising significantly. Government is generally well sighted on HR1s but not redundancies of those below the threshold. Perceptions are that these smaller redundancies will be far higher in total than the large HR1 notices. There are a growing number of enquiries from companies looking to downsize. There is a huge drop in overseas student applications and most universities are now notifying of redundancies. There have been large closures announcements in the region ie John Lewis, Jaguar Land Rover etc, and although there is some offset by thriving companies the closure outweigh the opportunities. Legal and financial calls have rocketed with businesses looking at redundancy post furlough.
- The unintended consequences of government loan programmes are having effects on other types of lending, i.e. banks are trying to make up income in other ways, so raising costs in other areas.
- Young people employment incentive: businesses are more concerned about keeping existing employees before taking on new. So this policy may not have much take-up as they want to put effort into current staff not new.
- The £1000 bonus for keeping people when returning from furlough is not an effective policy. It’s a small amount relative to the cost of retaining someone, and will not change any decision on redundancies and is therefore likely to go to businesses that would have kept staff anyway.
- Brexit – it is a tall order to prepare without understanding what you are preparing for and the timing is not realistic. Business is investing in survival now and this may knock them out.
- Since January, we have seen a growth in youth (16-24) claimants of 123% across the UK, representing an additional 279,655 young people. Across the WMCA (3LEP) area, youth claimants have increased by 05%. As a proportional increase in January, we have seen large increases in claimants in areas which do not normally experience high youth unemployment.
- Overall, in June for the West Midlands region, 820,200 people have been furloughed which is approximately 32% of jobs. The total number of workers furloughed accounts for 8.7% of the UK total which is the 5th highest region. Compared to May, the number of workers furloughed in the West Midlands region has increased by 123,100 people which equates to 17.7% rise, while for the UK there has been a 7.8% rise. The two next highest sectors for furloughed workers in the West Midlands was manufacturing at 17.9% (146,600) compared to 10.5% nationally and accommodation and food services at 14.7% (120,200) compared to 17.6% nationally.
- Councils have warned the latest government announcements will not be enough to prevent financial failure of councils. Council total budgets for last year came to £56bn and costs to date on the pandemic have been £4.8bn and could reach £10.9bn. The BBC carried out research with councils on the impacts and they highlight that impacts include lost business rates, council tax holidays and emergency payments for families whose incomes have disappeared have all hit upper-tier councils’ income, at the same time as rising costs of adult care and providing protective equipment (PPE) for carers. Some of those councils would also typically depend on tourism for large chunks of income, such as dividends from airports they own or parking fees from visitors.
- Nationally, between 28th June and 5th July footfall saw a moderate increase – mainly due to an increase in high street footfall in the last two days of the week. High streets increased from under 40% to 50% of its level when compared to the same period as last year over the weekend. Shopping centres increased to just over 50% of its level on the same day last year and retail parks at around 75% of its level at the same time last year.
- Food poverty has accelerated through the pandemic, The Trussell Trust saw a national rise of 81% and 122% rise in parcels going to children. This is on the back of a 23% rise in the 6 months to December 2019. The Independent Food network reported a rise 17 times the same period last year. The Trussell Trust has said current levels of provision are unsustainable. They published the key findings from their latest research which found:
- An 89% increase in the number of food parcels distributed in April – up from 81% in March.
- 67% increase in household referrals- up from 48% in March.
- 107% increase in the number of children needing support from the same time in 2019.
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.
This blog was written by Rebecca Riley, Business Development Director, City-REDI.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.
To sign up to our blog mailing list, please click here.