This week the national lockdown ended and areas have reverted back to tiers. The West Midlands is in tier 3, the highest tier with most restrictions. This is forcing the continued closure or reduced functioning of many businesses specifically in hospitality, tourism and retail. As Brexit draws closer businesses are raising more issues and concerns about how to prepare, without clear guidance:
- There were 226 deaths registered that were related to Coronavirus over the week ending 20th November– this accounts for 23.9% of total deaths.
- Britain’s economic recovery will be one of the slowest next year, according to the Organisation for Economic Co-operation and Development (OECD). Global GDP is projected to return to its late 2019 level by the end of 2021, but the UK economy will remain 21% smaller. Under this forecast, only Argentina’s performance will be worse.
- EY has revised its economic growth forecast for the UK, revising its growth forecast down, as opposed to upwards, in conflict with other forecasters such as Capital Economics. Capital Economics has stated that the arrival of a safe and efficacious vaccine is a game-changer. It notes that it expects consumer confidence and consumer activity to quickly resume once the pandemic has resided leaving few lingering effects or structural scaring to the economy. Demonstrating the volatility of interpretation of activity leaving the pandemic.
- Manufacturing output is expanding in China at its fastest pace for more than three years. The nation’s service sector is also growing, hitting a multi-year high. The National Bureau of Statistics released PMI data indicating that Chinese PMI has risen to 52.1 in November from 51.4 a month before, outstripping expectations.
- November was the best performing month for the FTSE 100 in more than 30 years. Despite this UK shares missed out on recording their biggest gain when shares dampened near the market’s close.
- In a blow to the UK high-street, Debenhams is to be wound down placing 1,000s of jobs at risk. Administrators were unable to secure a suitable deal to safeguard the future of the business.
- Hospitality businesses are now expressing real concern over their ability to survive. They are reaching the end of limits on borrowing with many businesses expecting not to survive.
- Brexit – for business support this will be a significant project in the first quarter, once the impacts are known and the outcomes of any deal. The real impact of Brexit is not known in businesses and preparedness is not really there as yet. There are already issues with freight, with costs rocketing for shipping through the ports and huge hold-ups. There is also a need to be really proactive with businesses not engaging, and there is a ‘head in the sand’ pattern with many businesses. This will hit them hard in January 2021.
- There has been a surge in start-up enquiries especially in retail yet in relative terms fewer dissolutions (this may still be the impact of policy). However, 55% of calls to support bodies are on redundancy processes.
- Funding for the UK Shared Prosperity Fund (UKSPF) will ramp up so that total domestic UK-wide funding will at least match receipts from EU Structural Funds, on average reaching around £1.5 billion per year. In addition, to help local areas prepare over 2021-22 for the introduction of the UKSPF, the government will provide additional UK-wide funding to support communities to pilot programmes and new approaches. Compared to the last European Structural and Investment Fund (ESIF) budget period there is a big gap between the funds that were available for regional development with the support of the European Union funds and what’s allocated to UKSPF (EU £1.5 billion x 6 regions = £9 billion).
- Around 70% of adults in the West Midlands 7 Metropolitan Area travelled to work (either exclusively or in a combination with working from home) a fortnight prior to lockdown, this dropped to around 56% a fortnight into lockdown.
- Around 23 million people across 21 local authority areas will be in the highest level – tier three – including Birmingham and several other parts of the West Midlands, Leeds, Sheffield, Tees Valley Combined Authority and North East Combined Authority.
- Footfall (Centre for Cities) and transport (TFWM) usage shows people adjusted their patterns of going out and spending at the beginning of the pandemic and footfall has never regained the levels pre-Covid. Footfall is consistently below 50% of the same time last year for most of the pandemic period. There is however a block of relatively consistent numbers still going out (probably linked to work demands). Regardless of the tier or restrictions these footfall numbers hardly moved until summer when they did start to increase; however, the introduction of a full hard lockdown creates a significant decline in activity. Consumer spending was starting to go back up slowly towards the end of the summer as people became more confident to go out, but this has slumped again (Centre for Cities). Closure of retail, hospitality and tourism sectors creates a disproportionate impact on those sectors which have high levels of furlough, low levels of income and low cash reserves, as well as being hit hard by sickness levels. Lockdown and more severe tier restrictions trigger consumer slumps, with national lockdown having the most severe impact (as would be expected).
- In general, government intervention has worked and is positively received by business.
- Credit and reserves are at a low across many sectors, apart from those sectors doing well in the pandemic, where consumer demand is still maintained.
- Forecasts are being revised down for this year, including the Office for Budget Responsibility (OBR), but there is optimism next year with the introduction of vaccines.
- There are significant sectoral impacts as shown in last week’s OBR and the work in earlier monitors looking at risks. The closure of retail, creative/cultural and hospitality has significant impacts on the wider economy and these sectors are most at risk.
- Many businesses are struggling on the levels of income they currently have; higher tiers of lockdown jeopardise what business they have and funding is still essential, whilst business confidence is particularly low in the region. Businesses in the closed or restricted sectors need ongoing support throughout the pandemic regardless of the tier, which needs to be increased when in the most severe tiers to cope with closure. The longer the restrictions last the more behaviours change and habits change and the longer it takes to get back. The behaviour change could turn into a long-term pattern and businesses need to reengineer to cope.
- Increasing consumer demand can only be accomplished if risk and fear are reduced, which means doing more to promote safe activities, having clear evidence and building confidence back with the public.
Longer-term impacts of tiers
- Consumer demand may adjust permanently, ie online shopping.
- Saving may become a more permanent habit.
- High risk of commercial property vacancies and the collapse of markets.
- Once the fear of the pandemic is over, consumer demand may flood back especially with pent up demand from savings.
- In recession skills levels accelerate as people go into training in the absence of jobs.
- The sectors most hit in the West Midlands are needed to deliver the Commonwealth Games and the Capital of Culture but may not survive in order to make the Games a success.
State of UK Competition
Although it is still early to draw any definitive conclusions about the impact of the pandemic on competition, initial data shows:
- Since the start of the pandemic, around 40% of consumers report shopping around less than usual, particularly among older groups (55+) and those with an illness or condition that limits their ability to perform day-to-day activities. The main reason given for shopping round less is feeling safer buying in one place, which could suggest this drop is temporary.
- The accommodation and food services sector, as well as the arts, entertainment and recreation sectors are more likely to report that the number of competitors in their areas had decreased.
- Most businesses did not report experiencing any challenge in selling goods and services online during the pandemic.
- 40% of companies have postponed or reduced plans to expand and the new businesses created up to Q3 2020 appear to be smaller in size than in previous years.
- Construction, Accommodation and Food, and Arts, Entertainment and Recreation saw the biggest drops in the number of businesses being created. There are no clear regional differences in business creation, although London is the only area to record positive business growth in both Q1and Q2 2020.
- There has so far been no spike in business closures, although the overall business population shrank in Q2 2020.
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.