West Midlands Weekly Economic Impact Monitor – 18th September 2020

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This week, Coronavirus cases are rising and new regulations have been introduced to stop the spread of the virus, schools have returned but many are suffering temporary closures and universities are also opening. There has been significant disruption to testing nationally and the rise in cases has hampered the return to offices. Unemployment and claimant numbers are generally not as bad as predicted but still at levels not seen in a considerable time. There are significant risks on the horizon, not least the fact that business future confidence has dropped in the latest PMI.

Key issues
  • In the UK, Coronavirus cases continue to hover above 3,000 for the third day in a row. Government has tightened restrictions with the implementation of ‘the rule of 6’. The messaging and rising cases have undermined the government’s efforts to revive the economy by getting people back into the office. In new rules for Birmingham, Solihull and Sandwell, households are not permitted to mix with other households inside their home or in their garden. Households can meet in outside venues, such as in the hospitality sector as long as there are no more than 6 people
  • In August, inflation fell sharply to 0.2%. July’s figure had been 1%. Contributing factors to the big drop in Consumer Prices Index (CPI) inflation is likely to be the cut in VAT from 20% to 5% in the hospitality sector.
  • The Office for National Statistics has released the preliminary monthly estimate of GDP for the month of July. It is now expected that output will fall by just over 10% in the third quarter and by around 5% in the final quarter of the year. (All figures in comparison with prior year). For the year as a whole, this means that output will have fallen by 10% in 2020 compared to the prior year (this fits many forecaster predictions).
  • When compared to June 2020, monthly GDP has risen by 6.6% in July 2020. However, GDP was 11.7% below the levels seen in February 2020. Even though there was a higher number of businesses that reopened across the UK during July 2020, the rate of recovery varies across industries. For example, due to the ongoing social distancing requirements alongside the closure of concert halls the creative, arts and entertainment industry have struggled to recover.
  • The headline NatWest West Midlands Business Activity Index (PMI) registered at 61.9 in August, unchanged on July’s substantial high. The latest reading suggests a strong increase in business activity midway through the third quarter and thus a significant third-quarter recovery. In August, Business expectations regarding the outlook for output over the next 12 months were less positive. The Future Business Activity Index dropped nearly 10 points to its lowest level for three months. This could indicate business uncertainty over the ending of furlough, Brexit and uncertainty surrounding a rise in cases and a further imposition of lockdown restrictions
  • The Treasury Select Committee Report Economic impact of coronavirus: the challenges of recovery has made recommendations:
    • Consider whether additional measures are needed to stimulate consumption.
    • Set out how businesses are expected to manage the easing of the Coronavirus Job Retention Scheme (CJRS), and consider whether an extension of the CJRS is required to prevent unemployment.
    • Revise the Kickstart Scheme to make it more accessible for SMEs and charities to access.
    • Conduct an equality impact report, highlighting how the crisis has affected different groups unequally.
    • Conduct a review of whether changes to Universal Credit should remain, and whether statutory sick pay is appropriate to support workers isolating.
    • Evaluate the need for a new state body to ensure business resilience at times of crisis.
    • Publish a roadmap outlining how it intends to place National finances on a sustainable footing.
    • Publish a “levelling up” strategy, outlining clear objectives and indicators of what is considered “levelling up”.
    • Review the remits of institutions such as the Bank of England and the Office for Budget Responsibility, to promote the use of regional data.
    • Treat local government as a partner in future fiscal events, and outline additional support for local authorities in the case of local outbreaks.
  • The Institute for Employment Studies has published a briefing on the latest labour market release. The main points are:
    • Employment holding up and hours are starting to recover and overall the figures released this week were positive
    • There was a large fall in economic inactivity which has reversed the increases in lockdown; however, this is characterised by those out of work who have stopped looking for jobs.
    • Falling inactivity has fed through to unemployment with the rate at 4.1% (low in historic terms).
    • Furlough numbers appear to have been dropping, with a fall from 7.6m in July to 5.5m (however HMRC data is the most accurate representation). Pre-crisis around 2.5 m people were away from a job at any one point.
    • With more people returning to work, total hours worked and the average hours per worker both increased from the figures reported last month. However, the recovery in hours appears to have been a lot lower so far than the increase in the number of people back working.
    • The youngest and oldest are hardest hit, but levels entering education have risen.
  • Mark Hart, as part of the GEM network, highlights evidence from previous crises pointing to the postponement of start-ups during a crisis. The first signals in the current crisis are pointing in the same direction. It is imperative that incumbent economic activity is fuelled with new ventures, trying out new ways of producing goods or delivering services. Therefore, in the face of an economic outlook that is hard to predict for the next few years, entrepreneurs need to be able to operate in a context that does not further increase uncertainty.
  • Overall highways are seeing an increase in traffic on the motorway network matching pre-COVID levels with the peaks starting to re-appear. The Aston Expressway tidal flows are now in regular use. Bus patronage varies daily but is at approx. 60% of pre-COVID levels. Metro – Patronage is operating at around 60% with variances at the weekend. Rail – Service changes on the 6th September have increased services to approx. 95% of pre-COVID levels.
  • The eviction ban has been extended until the 20th of September 2020. On the 21st of August 2020, the government extended the ban on private-rented evictions until the 20th of September meaning no renters will have been evicted for six months. Housing Secretary Robert Jenrick said the Government also intends to give tenants greater protection from eviction over the winter by requiring landlords to provide tenants with six months’ notice of eviction. According to a survey by the Resolution Foundation, renters are more likely than homeowners to have fallen behind with their housing payments during the lockdown. They have been less likely to receive a payment holiday on their rent, as opposed to those with a mortgage. Between January to March 2020, 7,590 households were initially assessed for homelessness prevention and relief duty in the West Midlands, an increase of 10% (+ 700 households)
  • Overall footfall has remained around 75% of the 2019 level in the week commencing 31st. This suggests after a steady increase since the reopening of non-essential shops mid-June that footfall might be flattening off.
  • In the week commencing 31st August, retail parks had the strongest footfall at around 90% of its level a year ago, shopping centres and high streets were just below 75% of its level the same period a year ago.
  • Work by a cross-party group of MPs has found that the British people back an ambitious transformation of the UK into a greener, fairer more equal society post-pandemic.

Download and view a copy of the West Midlands Weekly Economic Monitor.

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  / WM REDI, University of Birmingham.

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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