This week we have seen significant changes in the USA with the inauguration of the 46th President; this could signal changing relationships which are yet to be understood. The current lockdown is adding uncertainty to business planning and forecasting, the impacts of the new EU trade deal are continuing to unfold, resulting in demonstrations by the UK’s fishing industry. But the vaccine rollout by the NHS is continuing at pace bringing hope for many and the potential of stabilisation in the situation.
- The US economy has taken significant hits to its economy due to Covid-19. More than 380,000 people in the United States have died of COVID-19 during the pandemic, with 22.7 million infected during that time. Consumer spending fell in November 2020 and that retail sales and employment fell in December 2020. It is highly likely that these trends were due to the rising number of infections and their impact on consumer behaviour.
- According to EY’s most recent regional forecasts, COVID-19 has made levelling up even harder by weakening the sectors that towns in the North and Midlands are most dependent on. EY projects cities will grow faster than towns and the South will outpace the North over the next three years. This is reflected in the GVA outlook for the Midlands regions between 2020 and 2023: a 0.3% contraction is expected in the West Midlands while East Midlands GVA is expected to remain flat.
Bank of England Latest
- The Bank of England predicts similar patterns, with GDP falls in Q4 2020 and slower recovery in 2021 and through to 2023 before it reaches the previous forecast. However, there is continued uncertainty within this forecast. The uptick in the economy has been driven by household spend focussed on home improvements and the shift to online. As in last week’s monitor, inequality is being driven by those on higher salaries and with homes at the higher end of the market who have been more protected and are able to save.
- Unemployment is projected to peak at 7.75% in Q2 2021 according to the Bank of England. This aligns with previous predictions from analysts and work in earlier monitors. But again, these projections are based on uncertainty. Effective employment support actions could reduce this (and to a large extent we have seen the success of schemes in keeping the unemployment relatively low under the circumstances). But going forward continued uncertainty or mistimed withdrawal of support could mean the higher end of the projection is possible.
- “The MPC would continue to monitor the situation closely. If the outlook for inflation weakened, the Committee stood ready to take whatever additional action was necessary to achieve its remit. The Committee did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”
- As reported previously, the UK is facing food shortages as confusion occurs at the borders surrounded the new trade rules, causing delays. The new trading rules following Brexit have been causing confusion and backlogs, leaving British fishing companies unable to sell their products to their biggest consumer, Europe.
- 9% of West Midlands businesses reported that they were not fully prepared for the end of the EU transition period due to the Coronavirus pandemic. 50.2% of responding West Midlands businesses were not sure what they needed to do to be prepared and 11.0% reported that no preparation was needed as it was expected a deal would be reached.
- 2% of West Midlands businesses who were exporting reported that they had not been affected and 54.1% reported that importing had not been affected. 4.7% of businesses in the West Midlands are exporting more than normal and 7.7% are importing more than normal.
- The number of deaths registered in England and Wales was affected by the Boxing Day and New Year’s Day Bank Holidays; 17,751 deaths were registered in the week ending 8 January 2021 (Week 1), 7,682 more deaths than in the preceding week (Week 53); this sharp increase may be because of deaths in the previous weeks whose registrations were delayed, so the figures in this week’s release should be interpreted with caution. There were 365 deaths in the West Midlands this week.
- In the week ending the 10th January, an additional 1,212,716 people received an NHS vaccination for COVID-19 in England. This took the total number of people vaccinated since vaccinations began on the 8th of December to 1,997,304 and the total vaccinations given to 2,371,407. The Midlands has achieved 447k cumulative vaccinations, (1st and 2nd doses for under and over 80s).
- Research by HBSC and Goldman Sachs presented in The Economist this week highlights that the British economy appears to be adjusting to lockdowns with the “the sensitivity of economic activity to covid-19 restrictions has diminished significantly since the first lockdown”.
- For the week ending the 10th January 2021, overall footfall was at 35% when compared to the same week in 2020. Overall footfall in the UK decreased by 2 percentage from the previous week.
- For West Midlands businesses that indicated they had sites that had paused or ceased trading, 66.1% were required to temporarily close due to lockdown regulations, 25.9% stated that it was not financially viable to keep open and 18.7% reported insufficient footfall or customer interest.
- 5% of West Midlands businesses reported prices did not change any more than normal, 2.6% reported prices increased more than normal and 3.8% of West Midlands businesses reported some prices increased and some prices decreased.
- 3% of trading businesses in the West Midlands reported profits had decreased by at least 20%. However, 35.2% of trading businesses in the West Midlands reported that profits had stayed the same and approximately 7.0% reported their profits had increased by at least 20%.
- 4% of West Midlands businesses reported that capital expenditure had not been affected due to the pandemic. 30.3% of responding West Midlands businesses reported capital expenditure is lower than normal. 9.9% of West Midlands businesses reported that capital expenditure had stopped and 4.9% reported capital expenditure was higher than normal.
- 0% of businesses had high confidence in surviving over the next three months. 26.5% had moderate confidence in survival, 4.5% had low confidence and 1.1% had no confidence
- In the West Midlands, 80% of adults reported they were very or somewhat worried about the effect COVID-19 was having on their life, above the Great Britain average of 78%.
- Demos and KPMG have found that towns across the UK are split – half of the population are wary of newcomers, new houses, and new jobs, and the other half embrace these things. As towns face new challenges as the impacts of COVID continue, the research recommends meaningful conversations between local governments and residents to build support for more (affordable) homes, investment in the town, and the integration of newcomers with existing residents.
- The Joseph Rowntree Foundation has released its 2020/21 report on poverty which begins to quantify the impact of COVID on poverty in the UK. The long-term impact of furlough and unemployment, and the inability of benefits to keep up with actual costs risks sending more people into poverty.
- The National Audit Office has released an analysis of the “Everyone In” programme which saw 33,000 people brought into accommodation and £3.2 million spent in order to achieve this. The report asks questions about what will be done about those who have no recourse to state benefits.
- The Federation of Small Businesses worry that over a quarter of a million small businesses will cease trading altogether without further financial support from the government, whilst others have frozen activity taken on debt, and reduced employee numbers.
R&D recommendations form the Manufacturing Commission
- The Government must match public sector investment in the Midlands at the same levels it does for the rest of the UK.
- Address the fragmented support for manufacturing across the Midlands:
- Have a unifying agenda and consistent, coordinated intervention
- Have a balanced and enhanced package of support including capital allowances, R&D tax credits, access to growth capital and patient capital
- Create SME clusters in the region, adopting the principle of the Korean KICOX model to create supply chains for emerging markets and help SMEs pivot from markets that are in decline.
- The new internship programme for graduates into SMEs helps provide:
- Bandwidth for SME leadership to be strategic as well as operational
- Vital industrial experience for graduates at a time when employment opportunities are scarce
- Supplementary industrial mentorship programme to support both the SME leader and the graduate
- Create a productivity growth fund to support SMEs to adopt and deploy advanced manufacturing technologies based on the Made Smarter initiative.
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.