Prosper asked Dr Steven McCabe, Associate Professor, Institute of Design and Economic Acceleration (IDEA) and Senior Fellow, Centre for Brexit Studies, Birmingham City University for his views on the future of the West Midlands economy.

In early March when we were seeing the startlingly rapid increase in COVID deaths in other European countries, most notably Northern Italy, in which national lockdowns had been implemented, it was believed that the UK would be doing similarly very soon. Hindsight is a wonderful thing, but it is accepted that the Johnson-led government did not act in implementing lockdown as soon as it might have done so.


When it did come, once data on infections and deaths were starting to rise exponentially, there was a sense that lockdown inevitable and the only way to “defeat” the virus. The perception was that lockdown would be short and sharp and that we’d return to normality as within a matter of weeks.


Some six months since 23rd March when the Prime Minister told us we “must stay at home” and that the majority of business must cease with immediate effect, we’ve been through a traumatic period during which we’ve witnessed economic decline that’s unprecedented. A decline in GDP in Quarter Two (Apr to June) of 20.4% dwarfs anything seen in living memory-making even the Quarter One drop in 1974 of 2.7%, due to the miners' strikes, look relatively benign. 


Though there has been a 6.6% improvement in July, the third month of recovery, the UK economy is still 11.7% below where it was in February and, as the ONS point out, has “recovered just over half of the decline […] measured from its lowest point during April 2020.” Easing of lockdown restrictions that were part of the ‘roadmap’ has allowed key sectors to open up and recover. 

The diagram below shows that service industries grew by 6.1% in July and are 12.6% below their level in February 2020. Production grew by 5.2% in July and is 7.0% below the February level. Manufacturing, which grew by 6.3% in July is 8.7% down on February. Construction, having experienced the largest decline due to lockdown, though experiencing the greatest recovery of 17.6% in July, remains 11.6% below its February level. 


Any initial hopes that this would be a short-term crisis have been dashed. As recent announcements made by the government, most notably the Prime Minister on Tuesday 22nd September, the ‘roadmap’ back to normality has been rewritten to include tighter restrictions on the way in which people work and socialise. 

This is likely to have two profound impacts in the coming months. Economic activity is so urgently needed to assist in the recovery is likely to be stymied. The diagram below suggests that the recent upturn in growth will be temporary and the next two quarters will be negative (a recession), future growth inconsistent and that recovery to where we were prior to COVID will not be possible until the third quarter of 2022.


The other very worrying concern is national unemployment which has remained virtually static during the health crisis at 3.9% (now 4.1%) due to because of the Coronavirus Job Retention Scheme, known as ‘furlough’’ However, we may start to rise rapidly when this scheme ends on 31st October.


Chancellor Rishi Sunak’s announcement of assisting firms through a wage subsidy scheme in which there is support given to firms whose employees are paid for working at least a third of their usual hours, effectively putting them on short-term contracts for six months from 1st November, may ensure we don’t see a level of joblessness last experienced in the 1980s when traditional manufacturing was particularly badly affected.


If the national picture is, to say the least, uncertain, every region has experienced COVID in ways that are related to its industrial and commercial base. Unsurprisingly, therefore, the West Midlands has felt the economic consequences of shutting down large swathes of business. This is shown in the following diagram:


Though different sectors have experienced varying rates of decline and ‘bounceback’, the scenario of further restrictions on people’s movements and ability to work/socialise is likely to continue to hold back confidence and undermine consumer behaviour.


COVID, a world health crisis, may mean that export markets remain sluggish for the next year or so. And, of course, there is the not insignificant matter of the outcome of ongoing negotiations with the European Union concerned with achieving a free trade agreement.

The impact of ‘no-deal’ meaning all arrangements for trade cease and tariffs being imposed hardly needs to be emphasised in terms of the damage that could be inflicted on industries such as manufacturing that is so crucial to employment in the West Midlands region. The table below demonstrates that manufacturing in employing 10.3% of the workforce in this region, is far higher than the national average of 7.5%.  


As the final diagram shown below indicates, unemployment in the West Midlands is 4.4% which is higher than the national average of 4.1%. Of even greater concern is the so-called, ‘claimant count’, usually in receipt of universal credit, and regarded as a more dynamic indicator of any emerging situation.


That we’re undergoing the most challenging period of turbulence for many years is obvious. Conditions nationally and internationally offer little consolation that stability will return in the short-term.


Clearly, it behoves all businesses to be prepared for the economic outlook to remain difficult for at least the next twelve months. Moreover, it is to be anticipated, the nature and precise shape of industrial sectors in the region may be altered by a number of factors that, at present, are extremely difficult to determine.


Dr Steven McCabe is co-editor English Regions After Brexit: Examining Potential Change through Devolved Power, (published by Bite-Sized Books, ISBN-13: 979-8666953099). 


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