West of England Economic Briefing Highlights November 2022

West of England Economic Briefing 03 November 2022

Executive Summary This briefing summarises the current state of the economy in the West of England, giving an indication of the key issues facing workers and businesses. This analysis draws on regional and national data, and uses faster indicators where possible to illuminate current conditions. Section Updates Pages A: Economic context UK GDP fell in August 2022 by 0.3% The Bank of England increased the Bank Rate to 3%, an increase of 0.75% The Bank of England forecasts a prolonged recession throughout 2023 The ONS has significantly reworked its GDP data. The updated data now shows that the retail sector is well below pre-pandemic averages, and the arts and entertainment sector is also not doing as well as previously thought 3-6 B: Cost of living Nationally, inflation continues to rise. The Consumer Prices Index (CPI) rose by 10.1% in the year to Sept 2022 The Bank of England expects inflation to rise (mitigated somewhat by the Energy Price Guarantee) and then fall steeply during 2023 7-8 C: Business and consumer activity This is the final month of Google Mobility data Usage of workplaces, retail and public transport are still below pre-pandemic average, without a clear trend pointing to recovery Businesses report that their main concerns are energy prices and inflation, with <10 employee businesses focusing on energy prices The FSB s South West Small Business Index shows a net 23% of businesses in the South West are expecting revenue to decline 9-11 D: Labour market Regional unemployment is steady, while national unemployment may be slightly increasing The Bank of England forecasts an increase in unemployment over the next year, up to 6% 12-13 2

A. Economic context: GDP fell by 0.3% in August UK monthly Gross Domestic Product (GDP) fell by 0.3% in August 2022, after an increase in July 2022 Overall, GDP was relatively flat in the most recent three months, compared with the first quarter of the year. After the most recent fall, GDP remains at around February 2020 levels UK Monthly GDP fell 0.3% in August 2022 (base year 2019 = 100) 110 105 100 95 8/1/2022, 100.14 90 85 80 75 70 Sep 2012 Sep 2013 Sep 2014 Sep 2015 Sep 2016 Sep 2017 Sep 2018 Sep 2019 Sep 2020 Sep 2021 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020 Mar 2021 Mar 2022 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Jun 2019 Jun 2020 Jun 2021 Jun 2022 3 Source: ONS GDP monthly estimates

A. National context: forecast of recession starting in late 2022 and continuing throughout 2023, with high inflation The Bank of England has raised the Bank Rate to 3%, a rise of 0.75% The Bank is forecasting a slowdown in economic activity and prolonged recession throughout 2023 and part of 2024 Inflation remains high at 10.1%; it is expected to be reduced somewhat by the Energy Price Guarantee, and to fall starting in early 2023 Inflation is projected to be below the Bank s 2% target in two years time The Bank s projections assume the Energy Price Guarantee (or similar intervention) will continue after the current six month validity Bank of England chart: GDP growth rate projection Source: Bank of England Monetary Policy Report, November 2022 Note: There is very high uncertainty in these forecasts. Bank of England fan charts show the projections based on the probability that it thinks they will occur, reflecting the degree of uncertainty. 4

A. National context: Unemployment is expected to rise sharply in the next 12 months; the global outlook is similar to the UK Unemployment is forecast to increase in 2023, with a potential increase to around 6% in 2025 Global GDP growth has slowed and is likely to experience similar reductions to the UK Globally, other central banks and similar institutions have raised rates at a similar rate to the UK Prices for oils and metals have fallen slightly since the last report in August Bank of England chart: Unemployment projection based on market interest rate expectations Note: There remains considerable uncertainty in these forecasts. Bank of England fan charts show the projections based on the probability that it thinks they will occur, reflecting the degree of uncertainty. Bank of England Monetary Policy Report, November 2022 Source: Bank of England Monetary Policy Report, November 2022 5

A. Economic context: Major overhaul of ONS data changes historic information The ONS has chosen to overhaul the data on each industry s contribution to GDP There are major changes in many sectors. Where retail was close to or above its February 2020 baseline, it is now around 20% below Accommodation and food now starts in April 2021 at 60% of the baseline, rather than 40%, but its recovery is more muted Overall sectors are doing worse than previously described, though the changes are relatively small for other sectors The changes are due to technical updates of the way the ONS calculates the data that underpins their calculations Changes like these are likely to take place on an annual basis, and should not be so major in future. The largest changes take place during the pandemic as small changes in calculations disproportionately affect each industry Monthly GVA for various sectors (February 2020 = 100) 110 100 90 80 70 60 50 40 30 Wholesale, retail and motors Accommodation and food Financial and insurance Arts, entertainment and recreation Manufacturing Construction Baseline 6 Source: ONS GDP monthly estimates time series

B. Cost of living: Inflation is continuing to rise and is expected to peak at the end of the year The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to September 2022 The Bank still expects inflation to increase, but at a shallower rate than previously projected, with rapid falls throughout 2023 The Government s Energy Price Guarantee means that energy-induced inflation will be lower than expected More than 70% of those on prepayment meters for their energy reported difficulty affording their payments for electricity or gas Those renting were more likely to struggle to pay their energy bills, compared to those with a mortgage (59% of respondents vs. 42%) Bank of England chart: Inflation projection based on market interest rate expectations (CPI) Note: There remains considerable uncertainty in these forecasts. Bank of England fan charts show the projections based on the probability that it thinks they will occur, reflecting the degree of uncertainty. 7

B. Cost of living: The impact is hardest on the lowest deciles The cheapest goods in supermarkets have experienced an average of 17% inflation These are goods where the purchaser does not have the option of choosing a cheaper version if the price increases Vegetable oil and pasta increased in cost the most, at 65% and 60% respectively For vegetable oil, this represents an increase from a September 2021 price of 1.56 to a September 2022 price of 2.58 Some goods reduced in cost beef mince and orange juice 8

C. Business and consumer activity: regional workplace footfall has declined Level compared with Jan-Feb 2020 Activity in the West of England for the last six months Google Mobility Data (7 day rolling average) This is the final month of Google Mobility data; the data series finished on the 15th of October 0 -5 -10 -15 -20 -25 Usage of public transport increased, but is still almost 15% below baseline -30 -35 -40 -45 Both Bristol and Bath continue to receive lower visitor numbers than pre- pandemic, but Bath s recovery has been stronger -50 Retail and recreation Public transport Workplaces Daily activity average for the West of England Retail and recreation activity Public transport activity Workplace activity 10% down (on pre- pandemic) This month 17% down 21% down Previous month 11% down 15% down 26% down 9 Source: Google Community Mobility Reports, Broadmead BID

C. Business and consumer activity: New business start-ups slightly below average, insolvencies rising On average there were 502 new business start-ups per month in the West of England in July to September 2022. This is below the average of 575 start-ups each month in 2019. Insolvent businesses are still below the pre-pandemic average, but rates are continuing to rise. Number of businesses in the West of England with liquidators appointed New business start ups in the West of England 800 70 700 600 60 600 525 50 500 38 40 400 30 300 20 200 10 100 0 0 Mar-19 Jun-19 Sep-19 Mar-20 Jun-20 Sep-20 Mar-21 Jun-21 Sep-21 Mar-22 Jun-22 Sep-22 Mar-19 Jun-19 Sep-19 Mar-20 Jun-20 Sep-20 Mar-21 Jun-21 Sep-21 Mar-22 Jun-22 Sep-22 May-19 May-20 May-21 May-22 May-19 May-20 May-21 May-22 Nov-19 Nov-20 Nov-21 Nov-19 Nov-20 Nov-21 Jul-19 Aug-19 Jul-20 Aug-20 Jul-21 Aug-21 Jul-22 Aug-22 Jul-19 Aug-19 Jul-20 Aug-20 Jul-21 Aug-21 Jul-22 Aug-22 Jan-19 Dec-19 Jan-20 Dec-20 Jan-21 Dec-21 Jan-22 Jan-19 Dec-19 Jan-20 Dec-20 Jan-21 Dec-21 Jan-22 Feb-19 Apr-19 Feb-20 Apr-20 Feb-21 Apr-21 Feb-22 Apr-22 Feb-19 Apr-19 Feb-20 Apr-20 Feb-21 Apr-21 Feb-22 Apr-22 Oct-19 Oct-20 Oct-21 Oct-19 Oct-20 Oct-21 Oct-22 10 Source: Bank Search Consultancy data

C. Business and consumer activity: Businesses continue to report increases in prices, with an impact on both businesses and consumers National retail sales volumes fell by 1.4% in August; overall the volume is approximately 1.3% below February 2020 levels. Online retail sales as a percentage of all sales increased to 26.4% The ONS survey of businesses this month took place between the 17th of October, when the Chancellor reversed much of the mini-budget interventions, and the 30th of October Almost 40% of businesses noted difficulties with changes in exchange rates affecting their ability to import goods (and almost 30% with their ability to export) Energy prices are the main concern for businesses with less than 10 employees, while inflation is the primary concern of businesses as a whole There was a slight increase in the number of businesses reporting interest rates as a concern, but it remains at around 5% A net 12% of businesses reported their turnover was lower in September 2022 Overall, 48% of businesses reported an increase in the price of goods or services bought in September 2022 Business confidence in the South West continues to decline (per the FSB), making it the least positive area in the country 11 Source: ONS estimates of retail sales and business insights survey and the FSB South West Small Business Index

D. Labour market: unemployment benefit claims remain steady in the region 2.6% of the region s workforce claimed unemployment benefits in July 2022. The percentage of people claiming out of work benefits in July was steady compared to June. Working age residents claiming unemployment related benefits (%) The claimant count for England for September was 3.8%, continuing a slight uptick in the rate over the past few months 7.00% 6.00% The Bank of England expects the unemployment rate to increase over the next two years, potentially reaching 6% 5.00% Analysis by the Institute for Employment Studies (IES) shows how the four local authorities in the West of England compare to the average in England for economic inactivity and vacancies: B&NES - low economic inactivity and high vacancies; Bristol - high economic inactivity and high vacancies; North Somerset and South Gloucestershire - low economic inactivity and low vacancies. 4.00% 3.00% 2.00% 1.00% 0.00% 10/1/2020 11/1/2020 12/1/2020 10/1/2021 11/1/2021 12/1/2021 4/1/2020 5/1/2020 6/1/2020 7/1/2020 8/1/2020 9/1/2020 1/1/2021 2/1/2021 3/1/2021 4/1/2021 5/1/2021 6/1/2021 7/1/2021 8/1/2021 9/1/2021 1/1/2022 2/1/2022 3/1/2022 4/1/2022 5/1/2022 6/1/2022 7/1/2022 8/1/2022 9/1/2022 West of England Bath and North East Somerset Bristol, City of North Somerset South Gloucestershire England 12 Source: Nomis Labour Market Profile, Institute for Employment- Work local: labour market analysis

D. Labour market: Vacancies continue at a high level Job postings continue to be elevated, but the Bank of England advises the situation is likely to ease over the coming year There were 1,246,000 job vacancies in the UK in July to September 2022, as vacancies slowly begin to reduce Note: Job postings levels and associated analytics are highly sensitive to the web-scraping tool used. Analysing trends rather than totals is therefore advised. Note: Any differences between the two datasets is likely in part due to different data collection methods and the type of data (total job postings is a flow of new job postings, whilst the survey data is a stocktake of open vacancies). Seasonally adjusted vacancies (ONS Vacancy Survey) UK Total job postings West of England 1246 26,142 Jun-22 Dec-2018 Dec-2019 Dec-2020 Dec-2021 Feb-2019 Feb-2020 Feb-2021 Feb-2022 Aug-22 Apr-2019 Apr-2020 Apr-2021 Apr-2022 Oct-2018 Oct-2019 Oct-2020 Oct-2021 Jun-2018 Jun-2019 Jun-2020 Jun-2021 Oct-22 Aug-2018 Aug-2019 Aug-2020 Aug-2021 13 Source: Labour Insight (regional job postings), ONS UK Vacancies and jobs

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