Our Economy
Forecasters are now coming to a general consensus they the UK is looking at a sharp fall and slower recovery over at least 2 years, with some sectors longer. There is limited expectation of a consumer bounce back, as people have utilised spare cash and resources and are reluctant to take on debt. The prolonged international lock down may change attitudes to what consumers value and need in the longer term, the effects of which we have yet to see emerge.
It is expected that we will have the worst recession in history, with March 2020 seeing the biggest GDP fall since records began and IMF predicting a drop in GDP close to 6% and likely to take 2 years to recover. The OECD released its latest predictions and warns that the UK is likely to be hardest hit with a slump of 11.5%, 14% if there is a second wave. This is largely because of the reliance of the UK on the services sector and the warning that the furlough scheme may not offset effects on employment. Local intelligence would reflect this concern that furlough may just be deferring redundancy and company failure later in the year. ICAEW forecasts prepared by Oxford Economics say GDP dropped 2% in Q1 the largest drop since 2009 and is forecast to shrink by 8.3% rebounding by 7.8% next year. The West Midlands may face the largest decline of all regions at 9.2%, however it may see the largest growth in 2021 at 8.1%. This is based on having the largest number of temporary closures and an expectation of most reopening. This however is far from certain and will be affected by social distancing measures, a trade deal and the implications of a second wave with continued lockdowns.
More forecasts, reports and research are now being published, many of which say Birmingham will be one of the hardest hit places. Oxford Economics predict it will be the worst hit city in the EU. This is because of the dependency on automotive and education (Higher Education Institutions), a younger than average population and high levels of health issues.
The Purchasing Managers Index (PMI), which tracks on a monthly basis business sentiment and thoughts about growth, has had a volatile ride in the last few months. PMI dropped to an all-time low in the region at 10.9 (growth would be above 50 and recession under 50). It is showing welcome signs of the economy picking back up for the West Midlands to 27.9 from its unprecedented low of 10.9 and the export climate index rose to 35.9 from the record low of 24.5 in April.
The pandemic makes it more likely that the UK will exit the EU without a trade deal, work by City-REDI estimated a risk (of no deal) to WMCA GDP of 12.2%and the whole NUTS1 region of 14.3% making it more exposed than the UK average. It is expected that any type of Brexit will exacerbate the negative impact of CV19. We are also nearing the closure of the EU programmes, 80% of which support recovery type activities and there has been no detail on replacement or shared prosperity funds.
Nationally a gradual lifting of lockdown is underway with non-essential retailers able to open from 15thJune (contingent on the Covid-19 situation). From August employers will have to pay a quarter of the wages of furloughed staff. There are also reports that some large companies are seeking government bailouts.
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UK likely to be the hardest hit region. WM face the largest decline of all regions at 9.2% with the largest growth at 8.1%. But risks are on the downside and on how well businesses recover and return to normal
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PMI Business Activity Index in the region dropped to an all-time low of 10.9 and export climate dropped to a record low of 24.5