West Midlands faces slower economic recovery from the pandemic

A new report from professional services firm Ernst and Young (EY) found that the significant impact of the pandemic on the region’s economy in 2020 and 2021 means the West Midlands’ Gross Value Added (GVA) is forecast to be only 5.3 per cent larger in 2025 than it was in 2019.

GVA is the measure of the value of goods and services produced in an area, industry or sector of an economy.

By comparison, the UK’s total GVA is forecast to have increased by 8.3 per cent. The region’s GVA and employment will grow at a similar pace to the rest of the UK from 2022 to 2025, with average annual growth rates of 2.8 per cent and 0.9 per cent respectively, aided by a period of rapid growth in 2022.

EY's latest Regional Economic Forecast sets out the scale of the task needed to level up the UK economy, and reveals that eight out of nine English regions are expected to have returned to their pre-pandemic levels of output by the end of 2022 – with the West Midlands the exception.

Simon O’Neill, office managing partner at EY in the Midlands, said: “While the automotive sector helped the West Midlands power ahead in the years leading up to the pandemic, the impact of Covid-19 on supply chains and demand means the regional economy has more ground to make up than elsewhere.

“With the data showing London recovering from the pandemic more quickly than much of the rest of the of the country, action is needed to ensure places like the West Midlands don’t get left behind. Greater flexibility on where people work, aided by the pandemic, could help things – as will improvements to regional connectivity like the next phases of the Metro and the development of HS2.

"Focusing on what attracts people and businesses to a region, attracting the right mix of sectors and job opportunities, and tackling issues that affect quality of life will be key to taking advantage of this. Events like the Commonwealth Games certainly fit the bill.

“As previous EY research has shown, the UK’s net zero and levelling up ambitions go hand-in-hand: the billions of pounds of investment required to reach net zero present a golden opportunity to transform not only the environmental sustainability of the UK economy, but its regional balance too. The manufacturing and utilities sectors, for example, are key to the net zero agenda – and they are vital to regional economies, including the West Midlands.

“Post-pandemic, the growing importance of some sectors can also be seen in places like Lichfield, which is forecast to be England’s best performing town between 2022 and 2025. From 2023, the town will be home to a new global fulfilment centre for an online retailer and is expected to see its GVA grow 3.6 per cent per year.”

EY’s research shows that while Covid-19 has helped to narrow the UK’s regional economic divide, the gap between London and the rest of the country is set to grow again during the post-pandemic recovery.

Only the East Midlands and South West are currently expected to gain any ground on London over the next three years compared to their pre-pandemic performance – although the capital is on course to pull ahead again after 2025.

The report also forecasts that the economic gap between cities and towns will continue to widen, with England’s major cities expected to grow 2.9 per cent per year by 2025, compared to forecast growth of 2.6 per cent in towns.

After Lichfield, the region’s fastest growing locations will be Solihull, Rugby, Redditch, Stoke-on-Trent, Walsall, Telford and Wrekin, Coventry, Sandwell, Dudley, Wolverhampton and Worcester.

According to EY’s analysis, the West Midlands, North West and London economies were the most affected by the initial impact of the pandemic, with 2021 seeing the West Midlands economy recover to just 94.5 per cent of its 2019 size.

Relative to their pre-pandemic GVA levels, the West Midlands, North West and North East are expected to grow at the slowest pace by 2025.