West Midlands Weekly Economic Impact Monitor – 27th November 2020

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This week the Chancellor announced the Spending Review, the Office for Budget Responsibility (OBR) published its latest forecast and the Treasury has launched the new Green Book. The UK economy is expected to shrink by 11.3% this year – the largest fall in output for 300 years. Covid-19 will leave “long-term scarring” and the economy won’t return to pre-pandemic levels until Q4 of 2022. By 2025, the economy is expected to be 5% smaller than first thought in the Spring Budget earlier this year. Government borrowing will reach almost £400bn this year 19% of GDP, the largest level of borrowing in peacetime.

  • There were 200 deaths registered that were related to Coronavirus over the week ending 13th November– this accounts for 22.8% of total deaths.
  • The UK economy is expected to shrink by 11.3% in 2020 and not return to its pre-crisis size until the end of 2022.
  • Government borrowing will rise to its highest outside of wartime to deal with the economic impact.
  • The government’s independent forecaster, the OBR expects unemployment to surge to 2.6 million by the middle of next year.
  • It means the unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009; however, this has already been revised down from 10% and could be revised down further.
  • The combined impact of the virus on the economy and the Government’s fiscal policy response pushes the deficit this year to £394 billion (19 per cent of GDP), its highest level since 1944-45, and debt to 105 per cent of GDP, its highest level since 1959-60.
  • These favourable financing conditions suggest that the sharp rise in debt to absorb the cost of the pandemic has not undermined the sustainability of the public finances. Indeed, it is more likely that sustainability would have been damaged if the Government had not stepped in to support the private sector.
  • Many public workers will see their pay frozen in 2021-2, except the lowest paid and NHS staff, meaning a million NHS workers and those earning less than £24,000 will still get an increase.
  • The Overseas Aid budget is to be cut by about £4bn.
  • A new £4bn “levelling up” fund will pay for upgrading local infrastructure across the UK.
  • Business confidence in the region has fallen since the introduction of national restrictions, according to the Institute of Chartered Accountants in England and Wales (ICAEW).
  • The region’s large manufacturing sector is especially exposed to Brexit uncertainty.
  • Exports are down sharply and the percentage of businesses operating below capacity is now the highest of any UK region.
  • Customer demand and late payments are by far the most widely growing challenges.
  • Companies are cutting investment spending, with subdued plans for the year ahead.
  • However, businesses do expect sales performance to improve next year.
  • The Green Book has changed. From now on policies must be developed and rigorously assessed against how well they deliver on the Government’s policy aims such as levelling-up. In addition, proposals can no longer be developed without assessing the different impacts on places across the UK. These changes to the Green Book are one part of the Government’s wider levelling-up agenda to spread opportunity across the United Kingdom. Changes include:
    • A stronger requirement to establish clear objectives from the outset.
    • Stronger and clearer advice on what constitutes value for money.
    • New guidance on how to assess local impacts.
    • New guidance on the appraisal of transformational changes.
    • Measures to improve analysis on differential impacts.
  • The Treasury has established a new Green Book User Network, which is aimed at public sector users of the Green Book and the Business Case Guidance. This will promote the sharing of experience and expertise and run regular events focusing on particular themes or case studies. Rebecca Riley, West Midlands Combined Authority, is the Chair of the steering group.
  • The latest Make UK report recommends that giving powers to regions will help to tackle regional economic challenges and support the wider recovery:
    • 42% of manufacturers are dissatisfied with Government’s current levelling up agenda
    • Metro Mayors, LEPs and Local Authorities should work more closely with manufacturers as they develop new regional industrial strategies and push for real change in key issues in their regions
    • Four in ten manufacturers want greater emphasis on local infrastructure projects over national ones to boost regional productivity
    • 42% of manufacturers want to see improvements to local road, rail and bus services through refreshed regional industrial strategies
    • But there is a national consensus on infrastructure – digital connectivity is the number one priority for 41% of manufacturers
  • There are substantial differences in COVID-19 positivity rates by region. The national positivity rate in England is similar to last week; during the most recent week (8 November to 14 November 2020), it is estimated that 664,700 people (95% credible interval: 628,300 to 701,200) within the community population in England had the coronavirus (COVID-19), equating to around 1 in 80 people (95% credible interval: 1 in 85 to 1 in 80).
  • Over the last week, positivity rates have continued to increase in London, the East of England and the South East, however, rates now appear to be decreasing in the North West and the East Midlands; the highest COVID-19 positivity rates remain in the North West and Yorkshire and The Humber.
  • The highest positivity rates are seen among secondary school-aged children and older teenagers and young adults, although trends vary between these groups; rates continue to increase in primary school-aged children and positivity rates appear to be levelling off in people aged 25 years and over.
  • Modelling by WM REDI reveals the exposure of the West Midlands to European supply chains and the potential impact of a no-deal Brexit on the region’s economy. The methodological assumption takes the cessation of trade between the UK and the EU as a barometer of potential risks to regional sectors.
  • According to the model, 12.2% of West Midlands GDP is at risk because of negative trade-related consequences; in the wider region, the exposure of Shropshire and Staffordshire is 13.9% of local GDP and the exposure of Herefordshire, Worcestershire and Warwickshire is 14.3%.
  • Under the modelling scenario, 32.3% of the GDP of the manufacturing sector is at risk owing to its dependence on frictionless trade and just-in-time supply chains. Disruptions to logistics and distribution networks will have a huge impact on manufacturing, but other sectors also demonstrate a high degree of exposure. For example, 25.5% of GDP in the primary industries (extraction such as mining, agriculture and forestry) and 12.2% of GDP in the services sector would also be at risk in the event of the UK leaving without a deal on 31 October 2019.
  • The UK’s economically weaker regions in general face more adverse competitiveness impacts than the UK’s more prosperous regions. As such, these findings imply that Brexit will directly work against any ‘Levelling Up’ agenda because the trade and competitiveness implications of Brexit will almost certainly widen UK inter-regional inequalities.
  • For the week ending the 15th November 2020, overall footfall decreased to 44% of the 2019 level. However, this level of footfall is above the spring lockdown low point (week ending 12th April). High streets and shopping centres were at 36% of the 2019 level. Retail parks were at 68% of the 2019 level.
  • For West Midlands businesses that indicated they had sites that had paused or ceased trading, 21.9% stated that it was not financially viable to keep open, 68.8% were required to temporarily close due to lockdown regulations and 13.0% reported insufficient footfall or customer interest. While 9.3% reported the reason as other and 2.0% were unsure. 47.0% of trading businesses in the West Midlands reported profits had decreased by at least 20%.

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 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.

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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