West Midlands Weekly Economic Impact Monitor – 29th January 2021

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Whilst many countries start to roll back some of their Covid-19 restrictions and are seeing consumer spend bounce back, the UK is still under lockdown conditions.

  • This week the UK reached a bleak milestone, with the total number of Covid-19 deaths reaching 100,000. This makes the UK the fifth country and first in Europe to pass 100,000 deaths, after the US, Brazil, India and Mexico.
  • The number of hospital admissions, deaths and new infections remains worryingly high, though it is starting to decline. Disruptions caused by snow forced some Covid-19 testing sites to close across the region.
  • The government has also announced this week that UK nationals and residents returning from ‘red list’ countries will have to quarantine in government-provided accommodation such as hotels, for 10 days, without exception.
  • Home/office life is also set to remain very difficult for parents across the country, as schools in England will not return until at the earliest 8th March.
  • City-REDI is delivering work for the Colmore Business Improvement District (BID) which has launched a Call for Evidence for The Future Business District study.
  • Growth Hubs are still dealing with many positive stories from businesses that are surviving the pandemic along with those that have successfully diversified or pivoted, adapting services and production. New enquiries are resulting in referrals to relevant support partners and their programmes.
  • The unemployment rate for the WMCA (3 LEP) was 5.5% (109,900 people) in the year ending September 2020, compared with 4.2% for the UK. For the WMCA (3 LEP) area this is an increase of 9,300 people unemployed.
  • For the three months ending in November 2020, the West Midlands region employment rate (aged 16 – 64 years) was 73.8% which has decreased by 0.7pp from the previous quarter.
  • There were 42,220 youth claimants in the WMCA (3 LEP) area in December 2020, this was a decrease of 285 people when compared with November 2020.
  • The West Midlands region had 2.8m workforce jobs in September 2020. Following the trend across all the UK regions when compared with September 2019, the West Midlands decreased by 163,762 workforce jobs. The West Midlands region had 92,502 fewer workforce jobs when compared to the last quarter.
  • The vacancies recovery has slowed in October to December 2020, with an estimated quarterly increase of 81,000 vacancies to 578,000; the quarterly increase is half of that from the previous quarter.
Levelling up
  • The Industrial Strategy Council (ISC) and City-REDI have identified six foundations for levelling up:
    1. Scale and longevity of investments
    2. Collaboration
    3. Being an attractive place to live
    4. Investment in universities and innovation
    5. Investment in transport and digital infrastructure
    6. Skills and future sectors.

The report, drawing on international case studies, stresses the role of vision and strong leadership. This suggests that the elected Mayor in the West Midlands needs to be even more important over future years in setting policy direction and overseeing progress in levelling up. Collaboration at the local and regional level is also shown to be crucial in enabling struggling places to develop. The report found that “socio-economic inequalities between residents in each place were more difficult to address than attracting new businesses and high-skilled workers”. These challenges emphasise the need for regions to invest in affordable housing and targeted support for disadvantaged communities.

  • Midlands Cities worst hit by COVID-19 are set to make a faster economic recovery but the UK needs to think local to level up, according to Demos-PwC Good Growth for Cities report. Good Growth for Cities report calls for the Midlands recovery to look beyond national GDP and double-down on efforts to address the individual socio-economic challenges facing towns and cities to level-up inequalities. West Midlands’ hardest hit cities and towns are predicted to see some of the fastest growth rates in 2021 but need to embed lessons from the most resilient cities to achieve long term, sustainable growth. Wolverhampton & Walsall have seen their economies decrease by more than 11.7% in 2020, yet are among those with the strongest projected GVA growth rates for 2021. These cities are predicted to recover more effectively than others in 2021, with growth rates of 4.8% and higher. Coventry is predicted to grow by 4.3% GVA.
  • The economic impact of Covid-19 on cities and large towns outside the Greater South East has made the task of levelling up at least four times harder according to the Cities Outlook 2021 report published by the Centre for Cities. Categorising cities and large towns into four categories according to the relative severity of Covid-related and levelling up challenges, Birmingham, Solihull and the Black Country (grouped together in the analysis) are categorised in the most challenged category as in need of levelling up before Covid and having an export base further affected by Covid. Coventry is categorised as in need of levelling up pre-Covid but as having an export base more sheltered from Covid.
Ongoing Brexit implications
  • Three weeks after the end of the transition period following the UK’s departure from the EU, hauliers are already bearing the costs of the new post-Brexit border rules.
  • The FSB has released its West Midlands Small Business Index (WMSBI), which measures confidence amongst businesses. This shows signs of improvement in Q4 2020. It currently stands at -36% compared to Q3 2020, where it stood at -44%. Confidence in business performance over the next 3 months shows signs of improvement amongst small businesses in the West Midlands. Despite this, uncertainty due to Covid-19 remains, with small businesses in the area still holding a negative outlook.
  • Small companies are bearing the brunt of the issues as they don’t have the skilled people or access to funding for advice.
  • Within supply chains, there can be significant cost increases, with some companies experiences up to a three-fold increase. Although this is manageable in the short term for bigger businesses, smaller ones cannot carry that increase. Ultimately this will impact on supply chains, which larger companies rely on to survive.
  • Freight forwarders are putting on extra charges, partly due to the level of demand management required, but there is also some evidence that charges are being added which are unjustified.
  • Orders are being held up because of confusion, and for some companies, this is even when they are following the rules. Some companies are gaining from this confusion and increasing costs, but in many cases, freight companies are doing their job in asking for all the information, because they legally have to, but the government has the ability to stop this by changing the legal requirements or changing where data is collected.
  • Movement of people becoming a key issue, with visa and lockdown issues. There is some confusion over the intricacies of the varying scenarios of what workers, particularly in the service sector, can or can’t do – including the use of vehicles and equipment.
  • Companies are often referred to the Gov.uk website which doesn’t always provide the information and some find difficult to navigate. So regional organisations are working with the wider business and professional services sector to ensure access to advice. For example, advisors are working with accountants to provide support but there is a cost to providing this advice, which small firms can ill afford. There is a particular issue with the supply of advisors in customs declarations to do the paperwork as this has not been a requirement before.
  • There is evidence that EU companies are cancelling contracts as importing and exporting with the UK is becoming too expensive and ties up vehicles. EU companies are not looking for UK trade, and China is now seeing the UK as a special case and not looking for new business until the issues subside.
  • Generally, there is a strong business sentiment concerned about how long will these teething problems period last, and when will the issues be sorted.
  • There are certain things the government can do to simplify matters. For instance, re VAT: no one saw this coming as previously exemptions were in place, but these are now scraped and so could consider potential exemptions again.
  • There is a frustration that the government is paying out business grants to help companies survive and now increased costs through Brexit are hitting them and absorbing loans and grants.
  • Focusing on the automotive sector, what the Deal means for certain is that by 2027, there has to be 55% local content even for battery electric vehicles and that the batteries themselves will need to be assembled in the UK or EU for these to qualify for tariff-free trade. This will pose a particular challenge for UK auto and industrial policy. The UK is lagging behind EU countries in attracting investment in battery-making capacity and without a significant effort to reorientate the auto supply chain (via inward investment from battery makers and EV suppliers), UK car assembly will be increasingly dependent on imported components.
Business Closure risk
  • The lack of government support for small limited company directors has been highlighted. They are struggling to keep their businesses afloat and are increasingly considering redundancies.
  • There are significant concerns that many thousands of businesses are likely to cease trading over coming weeks and months due to continued lockdown, and deferred Coronavirus Business Interruption Loan Scheme (CBILS), tax payments etc now starting.
  • A major wave of bankruptcies for UK firms looms as many current business support programmes expire at the end of March and April. The most recent survey data from the Office for National Statistics (ONS) suggest that almost 15% – more than one in seven – UK businesses are at risk of failure by early April 2021. Micro enterprises with under ten employees are particularly vulnerable to closure.
  • The potential increase in registered business deaths in the first quarter of 2021 would be unprecedented in recent history, and 356% higher compared with the first quarter of 2019.
  • The current policy trajectory must be altered in order to provide protection now and to map a path for post-pandemic prosperity. Loan subsidies will need to stretch well into 2021 but should be tapered as the economy improves. We need to move to a system of debt restructuring in the recovery period. There are various options, but a form of swapping debt for equity should be considered.

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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