This week’s Monitor shows how, generally, the world economy is picking up with pent up demand starting to be released as countries unlock. However, in the UK this week there are stark warnings about the food and drink industry facing labour shortages, especially in fresh food and haulage. This is mainly due to the impact of fewer EU workers in the supply chains, but will be exacerbated by the ‘staycation’ holiday makers, as consumers who normally leave the UK and reduce demand will be staying. This could dampen the potential spending created by people staying at home this summer.
- The Economic Outlook KPMG found that the future was positive for the West Midlands, after suffering the sharpest contraction anywhere in the UK last year, mainly caused by falls in wholesale and retail trade. In the initial lockdown manufacturing operations were not subject to restrictions, this led to a rise in output last year. The super-deduction allowance on plant and machinery investment introduced in the 2021 Budget should help to accelerate manufacturing output over the next two years.
- The Greater Birmingham Chambers of Commerce highlight that the West Midlands has secured a 2% equity investment in 2020. Data from The British Business Bank’s Small Business Equity Tracker 2021 found that smaller companies saw a total of £382 million in equity deals last year, up 266% from the previous £104 million in 2019. However, despite this the West Midlands is still under-represented in its share of UK equity.
- The updated Quarterly Business report found that there is increasing confidence amongst Greater Birmingham businesses. The report found that many businesses are now on the road to recovery after struggling to stay afloat amidst the uncertainty of the pandemic. The report shows upward trends are due to the vaccine rollout and the gradual easing of restrictions allowing trade to resume. The domestic demand balance score has increased by 21 points this quarter to 68, the highest since Q4 2018, with 49% of businesses being confident that this upward trajectory would continue. Export demand emerged from negative territory for the first time since the beginning of 2020, with 32% of firms across manufacturing and service sectors seeing increases in non-UK sales.
- Made Smarter, in a bid to drive growth and boost productivity in West Midlands manufacturing and engineering SMEs, has launched a £1.9m digital adoption scheme. Digital specialists will provide advice to local businesses on how to switch to advanced automated technologies, as well as working to up-skill employees on their overall digital skills.
- IHS Market shows that the global economy has surpassed the pre-pandemic real GDP peak attained in the fourth quarter of 2019. The Asia-Pacific region was the first to complete recovery in late 2020, mainly due to a resilient Chinese economy. North America’s recovery has coincided with that of the world, with estimates from that US real GDP will reach a new peak in May 2021. Europe and Latin America will complete their recoveries in the final quarter of this year.
- Following a 3.5% contraction in global real GDP in 2020, it is now projected to increase by IHS Market by 6.0% in 2021: the strongest growth the world has seen since 1973. According to the World Bank after facing the deepest global recession since World War II and we will see the fastest post-recession global growth in 80 years at 5.6% in 2021.
- Rating Agency Fitch has raised the UK’s outlook to ‘stable’ from ‘negative’ to ‘AA-‘. This is due to recent macroeconomic, labour market and fiscal outturns since the beginning of 2021, which have shown the UK economy and public finances to be far more resilient to the shock of the pandemic than had been expected previously.
- As vaccination rates increase and lockdown-related restrictions are lifted, consumer spending is beginning to surge globally. This is most prevalent in the US, where pent-up demand for travel and all services involving social interaction is stronger than anticipated. Western Europe is beginning to see this boom in spending as well as economies gradually reopen.
- KPMG has also released its UK Economic Outlook report for June 2021. The short-term outlook is favourable for the economy, as the vaccination programme is well underway and further easing of social distancing restrictions are expected later this month. A combination of built up excess savings, pent-up demand and a number of government incentives are expected to boost economic growth this summer. KPMG forecasts indicate that the economy will grow by 6.6% this year and by 5.4% in 2022.
- Make UK and BDO Q2 Manufacturing Outlook indicate that Britain’s manufacturers have accelerating growth prospects. The sector’s growth is forecasted to double, to outpace the economy overall.
- The West Midlands Local Skills Report, written by the ODA/WMREDI supported by BCCEIU was published in May 2021, and its accompanying Evidence Base document provides a detailed summary and assessment of key data on education and skills in the West Midlands region. Key issues include: a higher share of the working age population without qualifications than the UK average; School Readiness for Early Years pupils has increased markedly in recent years (68.6% in 2019, from 56.4% in 2014); Apprenticeships do a good job on gender equity and reaching all ethnicities in the region. However, total apprenticeship starts are down 40% on 2015/16, having fallen after the introduction of the Apprenticeship Levy and precipitously after COVID; the gender pay gap is significantly smaller than the UK average in all three LEP areas; the claimant count has hugely increased through the pandemic, with a 97.5% increase on December 2019. However, this was smaller than the UK average increase (117.0%.); the GVA per hour worked in the region is lower (at £32.69) than the UK average (£35.03), but in recent years has increased faster; Several sectors of employment are growing faster than the Further Education system is training people, particularly Marketing and Sales, Management, Administration, Accounting, Nursing, and Care; there is currently an over-supply of skills in the region equivalent to NVQ1 and NVQ3, and an under-supply at NVQ2 and NVQ4.
- There were 145 FDI projects into the West Midlands region in 2020-21, this is a decrease of 7.6% (-12 projects) compared to 2019-20. The UK overall decreased at a greater rate, by 17.0% (-314 projects), from 1,852 in 2019-20 to 1,538 in 2020-21. In the West Midlands region, there were 4,443 new jobs created from FDI projects in 2020-21. This is an increase of 14.4% (+560 new jobs) from 2019-20. The UK experienced a decrease over the same period, and the region accounted for 8.0% of new jobs created from FDI projects; the second highest UK region.
- The West Midlands Business Activity Index slightly decreased from a record high of 65.9 in April 2021 to 65.5 in May 2021, although this is the still the second sharpest increase of business activity since records began in January 1997. With the Business Activity Index above the 50 mark which shows positive growth, firms reported expansion due to the further easing of lockdown measures, the reopening of additional businesses and a surge in demand. The overall UK Business Activity Index increased from 60.7 in April 2021 to 62.9 in May 2021. Out of the twelve UK regions, the West Midlands region was the second highest for the Business Activity Index in May 2021, only the North West scoring higher.
- The West Midlands Future Activity Index increased from 80.8 in April 2021 to 83.6 in May 2021 – reaching the highest level since records began in mid-2012. The positive expectations for the upcoming twelve months are linked to the ongoing easing of restrictions, vaccine success and hopes for further relaxations of travel restrictions.
- Opportunities: Plans to bring up to 1,000 new jobs back to the MG Longbridge site, where the iconic Mini was designed, have been announced by developer St Modwen; Accountancy firm Azets says it is set to create 650 jobs across the UK over the next 12 months – with 100 of those in the Midlands; A medical research firm has agreed a new property deal for a former supermarket site in Birmingham which will significantly expand its presence in the city. Binding Site has signed a 15-year lease to take 97,932 sq ft of space at the Broadway building at Five Ways island; Machining company AE Aerospace has secured a £400,000 loan to help safeguard its 65 employees – and create 10 new jobs.
- Covid-19 resurgences still remain a significant risk factor, however, especially in developing and emerging countries where the vaccine supplies are less plentiful. The UK has seen a resurgence in infection rates, and the daily new cases confirmed remains relatively high.
- There is an expected rise in insolvencies, as government support schemes are withdrawn, which could impact recovery down the line. Removal of government intervention schemes will also impact unemployment, the furlough scheme will end and whilst most will be reabsorbed into the labour market, unemployment is forecasted by KPMG to peak at 5.7% by the end of the year.
- Data from Springboard shows latest UK retail footfall saw a weekly decrease of 7% and was at 82% of its level in the equivalent week of 2019. The strongest weekly decreases in retail footfall were in high streets (-9%) and shopping centres (-8%). Footfall at retail parks reduced by 1%, but still remains strongest of all retail locations relative to their levels before the COVID-19 pandemic.
- Less than 1% of West Midlands businesses reported that the number of workers from within the EU had increased. 25.9% of West Midlands businesses reported the number had stayed the same and 8.7% reported the number had decreased. 1.3% of West Midlands businesses reported that the number of workers from outside the EU had increased. 17.8% of West Midlands businesses reported the number had stayed the same and 3.4% reported the number had decreased.
- The number of payrolled employees in the UK has increased for the sixth consecutive month, up by 197,000 in May 2021 to 28.5 million. It is however 553,000 below levels seen before the COVID-19 pandemic. Since February 2020, the largest falls in payrolled employment have been in the accommodation and food services sector, amongst people aged under 25 years, and for people living in London.
- Latest employment estimates (February to April 2021) continue to show signs of recovery. There was a quarterly increase in the employment rate of 0.2 percentage points to 75.2% and a quarterly decrease in the unemployment rate of 0.3 percentage points to 4.7%.
- The redundancy rate decreased by a record 7.1 per thousand employees on the quarter, to 4.0 per thousand employees (in February to April 2021) – similar to pre-pandemic levels. 5.8% of WM businesses expect to make redundancies in the next three months. 5.8% expect to make them within the next 2 weeks, 18.8% expect between 2 weeks and 1 month. 73.9% of expect between 1 and 3 months.
- For the week to 11th June 2021, there were 6,424 voluntary dissolution applications, an increase from 4,414 recorded in the previous week. The number of voluntary dissolution applications were higher than levels seen in the same week of 2020 (4,601) and the same week in 2019 (5,430).
- Food shortages are set to get progressively worse over the summer. The fresh produce industry usually struggles during summer due to increased demand and shortfalls in labour as staff go on annual leave. However, usually pressure is relieved on the industry as people go abroad on holiday, so causing demand to fall.
- The ONS has reported that the proportion of working adults who did any work from home in 2020 increased by 37% from 27% on average in 2019, with Londoners being the most likely to work from home. Most adults stated that they had a positive work life balanced with homeworking, but struggled with challenges around collaboration. 24% stated that they intended to use increased homeworking going forward. Online job adverts including terms related to “homeworking” have increased at a faster rate than total adverts, with homeworking adverts in May 2021 three times above their February 2020 average. Of working adults currently homeworking, 85% wanted to use a “hybrid” approach of both home and office working in future.
- The Q1 2021 Food and Drink Trade Snapshot collated by the Food and Drink Federation (FDF), has found that exports to the EU fell by £2bn in the first three months of 2021. Analysing trade data released by HMRC this was partly impact of the Covid-19 pandemic, and the change in trading relationships with the EU. This led to a total fall in UK food and drink exports to 28.1% in Q1 of 2021 when compared to 2020, and a fall of 36.5% when compared with pre-Covid Q1 2019 figures. FDF stated that this had been the first ever quarterly report they had written, in which exports to non-EU countries exceeded those to the EU, making up 55% of all UK food and drink exports. Another casualty of the new changes in trading relationships has been the sectors traditionally biggest export market – the Republic of Ireland – where trade is down -70.8% since 2020 and by -72.7% since 2019.
- According to HMRC, exports of food and live animals to the EU, including seafood and fish, have fallen by £0.7 billion or 63.6% in January 2021. It is stated that this is potentially due to the stricter checks and certifications implemented by the EU at the end of the transition period in December 2020.
- The Scottish Seafood Association has also said that exports to the EU have been hit by ‘red tape’ delays between Scotland and France. Consignment sign off for exports of fish is taking up to six times longer, and previously overnight transits of goods to France are now taking upwards of three days.
- Northern Ireland faced fresh produce shortages in supermarkets and now this looks like it is to spread to the rest of the UK. According to The Grocer, worsening food shortages are now ‘inevitable’ in the coming weeks and months, as labour shortages across the food supply chain approach crunch point. There have been shortfalls in fresh produce labour across the industry, with shortages in HGV drivers, harvesters, manufacturers, and packers, which is causing great pressures on supply chains in the industries. These jobs are on average low paid and highly physically demanding, and there are generally shortages in supply of labour. However, for a number of years the lack of labour supply for this industry has been helped by EU migrant workers coming to the UK, happy to work on the low industry wages, in the pursuit of a better quality of life.
- Brexit has also spurred the fall in HGV drivers as many European drivers left the industry, with the freedom of moment now gone and the increase in haulage times, as a result of increased border checks and paperwork, few people want to join the industry and it has caused many to leave.
- There has been a 45% fall in jobs searches from EU workers compared with 2016 according to data from Indeed. Since post-Brexit immigration rules were introduced at the start of the year, interest from non-EU workers has returned to pre-pandemic levels whilst interest from EU workers continues to fall.
- 7% of responding West Midlands businesses reported they had made changes to exporting/importing. 48.4% reported they were using more UK suppliers. 23.4% reported extra costs due to additional transportation costs. Although, 38.7% reported no extra costs.
- According to KPMG there is still great uncertainty surrounding the longer-term outlook for local manufacturing industry, especially surrounding the ongoing impacts of Brexit on the automotive manufacturing sector. As well as the expected longer-term falls in business travel, as greater digitisation allows colleagues to engage more efficiently from their home countries and as tastes in travel change due to the ongoing climate crisis, this will great impact neighbouring industries in the West Midlands such as aerospace.
The bi-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.