West Midlands Weekly Economic Impact Monitor – 4th September 2020

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WM REDI has been tasked with providing an up to date monitor of the current COVID-19 economic impacts, on a weekly basis. These reports will help regional partners to shape responses and interventions to boost the region’s resilience so that it can thrive going forward. Each week the focus of the report relates to research and evidence published that week.

This week we focus on the dilemma of returning to the office and the impact on cities. Most commentators highlight that this is a trend here to stay at least in the medium term. Cities will need to adapt their offer and opportunity to attract people and businesses back.

  • Europe has seen a resurgence in infection rates. The United Kingdom, Germany, and Italy all had just 15 or less per million; however even those low numbers are higher than what was seen earlier in the summer
  • Open Table data shows the ‘eat out to help out’ policy and the August Bank holiday impact with a rise of 216% on the 31st August, and most other offer days a rise of around 50% in diners.
  • Mobility across Europe remains significantly below previous years, with large variation. France, Germany, Italy and Spain all remain relatively low, but the UK is growing around retail centres.
  • Across Europe most furlough schemes will be coming to an end and could bring a tsunami of job cuts as companies prepare to carry out sweeping downsizing plans to offset a collapse in business from the outbreak. As many as 59 million jobs are at risk of cuts in hours or pay, temporary furloughs, or permanent layoffs, especially in industries like transportation and retail, according to a study by McKinsey & Company.
  • KPMG’s economic outlook for September highlights that the risks are skewed to the downside and include the resurgence of a second wave this year, no deal with the EU next year and limited progress in eradicating the pandemic. If these play out, growth in 2021 could vary between 8.4% and 4% (similar to previous forecasts from various forecasting houses). They highlight that the main risk to the short-term outlook comes from the possibility of a second wave of infections.
  • PMG’s Local Authority forecasts, with the largest drops in GVA 2020 in Stratford, North Warwickshire, Coventry and Solihull. In 2021 this will to some extent bounceback, but this growth is lower than the contraction in 2020. Which will leave the region’s economy lower overall.
  • The Chamber included specific survey questions related to the Brexit process. 55% of firms revealed that they had not undertaken a risk assessment on the potential impact that an alternation of trading terms with the European Union would bring from the start of 2021. 17% of businesses were unaware of the term ‘net zero’ and the potential implication it would have on their own firm.
  • According to ONS nearly 16% of responding businesses reported that operating costs exceeded turnover by at least 20%. Although, 13% reported turnover was equal to operating costs and nearly 34% reported that turnover exceed operating costs by at least 20%.
Return to the office
  • Deloitte highlights the prospect of unprecedented productivity gains through homeworking but society will pay a price in terms of less demand for office space, air travel, restaurants, hotels and public transport.
  • Nationally during the Covid-19 national lockdown in April 2020 43.1% of workers were working exclusively from home. In June 2020 the proportion had fallen back slightly to 36.5%.
  • Homeworking is positively associated with qualifications. The proportion of graduates reporting that they worked exclusively at home rose from 8.0% before lockdown to 62.4% in the first month of lockdown.
  • A clear occupational pattern of homeworking is evident. In April and May 2020 a majority of those in managerial, professional, associate professional and technical, and administrative and secretarial staff worked exclusively from home.
  • The top 10 places for footfall and spend share some distinct characteristics:
    • Seaside towns where visits have remained higher, if not boosted by staycations
    • They are the only local significant centre in the sub-region with lack of competition from elsewhere
    • Places with low levels of the sectors identified as ‘working from home’
    • They had less of a drop in footfall throughout the pandemic
  • Looking at the bottom places for spend and footfall they share other characteristics:
    • University cities and towns
    • Higher % of knowledge workers
    • Higher % of sectors identified as home working
  • Looking at the Centre for Cities recovery tracker and the worker index, Birmingham remains significantly below (similar to London) the average. With Coventry near the average. In terms of spend however Coventry after being below average in lockdown has now risen substantially above average, as has Birmingham. Whilst London still lags considerably
  • Results from a working at home experiment in 2013 amongst call centre employees at a Chinese travel agency, revealed a 13% performance increase amongst those working from home. Evidence from the Understanding Society: Covid19 study in the UK found no significant reduction in productivity associated with homeworking. 41% of respondents working at home reported getting the same amount of work done in June 2020 as they did six months earlier.
  • Businesses will have difficult decisions to make as homeworking can reduce costs and potentially increase productivity, the two biggest concerns especially in recession. There are also the corporate risks of bringing people back into an environment which may end in illness and quarantine, therefore reducing their workforce and with risks of litigation.
  • Cities therefore remain largely empty of workers, there is limited evidence that certain workers are returning, such as those where the job necessitates return and the young where the alternative is shared or cramped accommodation
  • There are strong motivating factors preventing the return:
    • Many of the highly skilled prefer it, they miss colleagues but not necessarily the commute (especially as that is likely to be much harder and riskier in the face of a deadly virus)
    • They have gained time in their day (some of which they give their employer) but they also gain personal time with family
    • It is easier (especially for older richer workers with space and digital connectivity)
    • Greater autonomy
    • Reduced outlays on transport and incidental spend on lunches and shopping (bearing in mind people have paid off more debt and increased savings more than ever before)
  • Employers also have to have motivation to bring staff back. The experience of the move to homeworking however has shifted opinions of many employers, weakening previous barriers around reliability of IT, trust and productivity.
  • This situation however is creating greater inequality, where low paid service workers have little or no choice but to return, even though for many occupations they are at higher risk. There are also significant risks for those in the gig economy amongst those who rely on face to face contact and may not be covered by employment rights.
  • In the USA Professor Nicholas Bloom at Stanford expects that a more hybrid way of working will emerge, with people whose jobs enable them to do so– notably highly educated managers and professional workers in the service sector. As a result, he expects spending in city centre bars, restaurants and shops to reduce by more than half as economic activity shifts away from city centres to suburbs and rural areas. He suggests that city centres will no longer be as attractive as places to live for young, highly educated people.
  • Those able and choosing to work from home for some or most of their time are likely to want larger residential accommodation to facilitate remote working and are likely to be willing to substitute longer for less frequent commutes. This suggests a shift in residential preferences to areas with cheaper housing and/ or to well-connected high-amenity places. Quality of life for the highly-paid is likely to become more important.
  • Key to returning is safe transport, Research in other countries had concluded that in order to operate the public transport in a safe way it is required that the transport operators reduce significantly the total capacity in the network, operating at most between 30 and 50% of total capacity.
  • The UK government advice is to wash hands for at least 20 seconds after completing a journey. To help to achieve this, Transport for London (TfL) has installed 1,000 hand sanitiser points to all tube and rail stations; London Overground and DLR stations; all bus stations and Victoria Coach Station.
  • A study carried out in London found a strong correlation between air pollution and an increase in the risk of COVID19 transmission within the London boroughs. The authors suggested using air pollution monitoring as a way to identify the city’s vulnerable points and therefore inform the decisions to suspend or reduce public transport in those points.

Download and view a copy of the West Midlands Weekly Economic Monitor.

City-REDI / WM REDI have 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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