WE KNOW THE ECONOMY ECONOMIC BULLETIN. Issue 14. July 2015

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1 WE KNOW THE ECONOMY ECONOMIC BULLETIN Issue 14 July 2015 WE ARE A PRIVATE/PUBLIC PARTNERSHIP THAT IS GROWING THE ECONOMY OF THE BRISTOL & BATH CITY REGION. SKILLS MANAGING FUNDS INWARD INVESTMENT PLACE & INFRASTRUCTURE MARKETING

2 INTRODUCTION This quarterly economic bulletin is intended to provide an overview of the economic health of the West of England looking at a variety of indicators. This bulletin is divided into four sections: 1. Business Conditions 2. Sectors (selected) 3. Employment / Labour Market 4. Property and Planning Comparator LEPs Where comparable statistics are available, the West of England LEP is benchmarked against other Core City LEP areas. The comparator LEP Core City areas are Greater Birmingham and Solihull, Leeds City Region, Liverpool City Region, Greater Manchester, North Eastern (Newcastle-upon-Tyne), Derby, Derbyshire, Nottingham and Nottinghamshire, and Sheffield City Region. The West of England is also compared to a number of southern LEP areas. These LEP areas are Gloucestershire, Greater Cambridge and Greater Peterborough, Oxford City Region, Swindon and Wiltshire, and Thames Valley Berkshire. SUMMARY TABLE (Positive, Neutral, Negative, increase, decrease, - no change) Data Sets Business Start-ups - The 2 nd quarter of 2015 saw a 19.0 percentage points (pp) increase in the number of businesses being started up in the West of England compared to the previous quarter. Headline Data Direction of Change 2,190 Employment Rate - The employment rate amongst the working age population stood at 75.8% in the year to March 2015, an increase on the same period the previous year by 2.1 (pp). Unemployment Rate In the year to March 2015 the unemployment rate for the working age population stood at 5.9%, a marginal increase on the same period the previous year by 0.1 pp Jobseeker s Allowance Claimant Rate - As of March 2015 the claimant rate in the West of England stood at 1.2%. This is a decrease of 0.6 pp on the same month the previous year. Advertised Jobs During Q there were approximately 45,348 online advertisements for jobs in the West of England area. This is a increase of 33.8% on the same period in House Prices In March the average house prices across the West of England continued to increase. House prices are becoming increasingly unaffordable. Median annual earnings are being vastly outstripped by house prices - varying from 6.4 times average earnings in North Somerset and 9.2 times in B&NES. 75.8% 5.9% - 1.2% 45, ,460 Inward Investment New Jobs new jobs have been committed in Q by four successful projects. 257 new jobs committed 1

3 1. BUSINESS CONDITIONS International The IMF predicts that global economic growth will reach 3.3 percent in 2015, marginally lower than in Growth is expected to be driven by a pickup in developed economies, but somewhat offset by a slowdown in emerging economies. Any risks to these forecasts are weighted on the downside but why? Economically the two main storm clouds have been the Greek debt crisis and the Chinese stock market crash. The Greek debt crisis continues to rumble on, but (at the time of writing) progress seems to be being made. At the start of the month the Greek parliament voted to authorise the Greek Government to negotiate a three year 60 billion bailout from its creditors. Although any agreement would be good news in the short-term, as without this deal there was real concerns that the euro and hence the EU project might all start to unravel, the reality of such a deal is the debt crisis has just been kicked down the road to be dealt with at some future date. If the Greece exit from the eurozone (also known as Grexit) is avoided, and this is far from certain, Europe s next test may come in the form of the UK planned in-out EU referendum which is scheduled to take place by the end of The other big international economic story has been the external shock to the global economic system caused by the collapse of the stock markets in China. The Shanghai Composite Index grew by around 250 percent between 2013 to June 2015, but the bubble burst and the index has since contracted by around 30 percent. The effect of the financial shock is still unknown. On the up-side the impact on China s real economy may be limited somewhat as equity shares account for only a small proportion of capital funding. Any impact on business investment should therefore be constrained. On the down-side, however, business and consumer confidence are likely be hit and the fall in wealth of the up and coming Chinese middle classes may reduce domestic consumption and hence depress growth. National In the UK, GDP growth in 2014 was robust (3 percent) and despite moderating to 0.4 percent in the first quarter of 2015, consensus seems to be that the outlook for growth for the remainder of the year remains solid. Inflation was flat (0.0 percent) in June 2015, driven primarily by falls in food, energy and other imported goods. These factors should fall out of the calculation at the end of 2015 and rates are expected to rise towards the Bank of England s targeted level of 2 percent within two years. In July George Osborne delivered his first solely Conservative budget. The main economic message, however, was continuity and stability. The Chancellor s plan to reduce the government s borrowing requirement was in line with that of the coalition, aiming for a surplus by The difference may have come in the mechanism through which the Chancellor aims to do this; the Government plans to cut 34.9 billion from benefits and welfare spending. The Chancellor forecasts were based on moderate economic growth and therefore he may have left himself some wriggle room later on in the parliament the hope is that with stronger economic recovery the country can reduce its deficit more quickly. Local The international and national context all impacts on the local economy; however, here we focus on two issues raised in the most recent budget corporation tax and the national living wage. 2

4 The reduction of corporation tax from 20 to 18 percent (by 2020) will be welcomed by local business. At current rates, it will be the lowest rate in the G20 and signals to the international businesses community that the UK is a profitable place to invest this is an opportunity for the West of England which should try to capitalise on its sound inward investment proposition in a number of high value sectors. The low wage, low productivity debate also spurred the Chancellor in to action with his announcement of moving to a new national living wage. This approach takes away the burden from the tax payer, who has effectively been subsidising those on low wages, and moves it to business. Critics question whether this policy will put UK and local jobs at risk this is possible, but the efficiency wage theory which has shown that by paying employees more, businesses can drive substantial improvements in productivity, ultimately leading to a growth in employment, rather than a contraction. Higher wages can improve productivity via a number of channels; business can recruit higher quality of staff, staff turnover drops, morale improves and workers elicit extra effort and can feel empowered to innovate and improve processes. The national living wage will be an additional burden for local businesses, but it is also an opportunity for them to differentiate themselves from their competitors. If companies in the West of England move first and adopt the national living wage ahead of their competitors, this could provide them with a competitive advantage which will allow them to improve the quality of their workforce, improve productivity and hence increase profitability. Damian Whittard Associate Head of Department, Accounting Economics and Finance, University of the West of England, Bristol damian2.whittard@uwe.ac.uk About the Author Damian Whittard is Associate Head of Department for Accounting Economics and Finance at the University of the West of England (UWE). He joined UWE in 2012 after a successful career working as an economist for the Office for National Statistics and the South West Regional Development Agency. Damian is currently an academic assessor for the Government Economic Service; a fellow of the Higher Education Academy; a trustee of Children s Hospice South West; a member of Bristol Economic Analysis Research Centre, and a member of the West of England s Panel of Economic Experts. Damian is also programme director for the Economics for Professionals course at UWE - These short-courses introduce business leaders to economic tools and techniques which can help them make better business decisions. Damian has a strong record of publishing research which is useful for policy. His work has been presented at many of the major economic institutions; including the International Monetary Fund; Organisation for Economic Cooperation and Development; Bank of England; and Her Majesty s Treasury. Damian s research interests primarily focus on four areas: i) Regional economics, ii) Happiness and well-being, iii) Measurement and coherence of national accounts, and iv) Education of Economics 3

5 BUSINESS START UPS Indicator 2 nd Quarter 2015 % Change on 2 nd Quarter 2014 % Change on 1 st Quarter 2015 Direction of Change on 2 nd Quarter 2014 Business Start-ups in the West of England 2, Business Start-up rate (per 10,000 working age population) 29.9 N/A N/A Source: BankSearch The 2 nd quarter of 2015 saw an increase in the number of businesses being started up in the West of England, +349 businesses on the previous quarter, resulting in a 19.0 percentage point (p.p) increase on the previous quarter. There was also an increase on the number of business start-ups compared to the same quarter in 2014, with a 1.3 p.p decrease. Comparing the 1 st quarter of 2015 with the same quarter of 2014 there has been a decrease in a number of start-ups across a number of industrial groups. However there were positive increases for some of the industrial groupings; the largest increases being in real estate, professional services & support activities and wholesale and retail. Business start-up data fluctuate quarter to quarter. In the main there has been a recent decline in the number of business start-ups; although this coincides with a strengthening national and local economy. Business start ups are an indication of entrepreneurialism and innovation and it is within these business start-ups that the jobs of the future will be created. However, rising start-ups can also signal times of economic distress; survival and positive churn within these start-ups are what matters. Graph 1: Business Start-ups in the West of England Source: BankSearch 4

6 2. SECTORS (SELECTIVE INDICATORS) This section primarily covers indicators for retail and tourism, which provide a dynamic picture of the health of the local economy. Both retail and tourism are influenced by disposable income. a) Retail The health of the high street continues to show signs of growth. Nationally in June 2015, the quantity bought in the retail industry increased by 4.2% compared with March The quantity bought decreased marginally on the previous month, falling by 0.2% on May However, the underlying pattern in the data as suggested by the 3 month on 3 month movement in the quantity bought continued to show growth for the 28th consecutive month, increasing by 0.7%. This is the longest period of sustained growth since consistent records began in June (source: Retail Sales March 2014, ONS). B&NES 2015 has seen a number of key occupiers repositioning their Bath premises to larger more appropriate locations as the City Centre s retail offer evolves following the full occupation of SouthGate. Linked to this the expansion of the City Centre leisure and hospitality offer is helping to enhance the city s visitor experience. Occupier interest remains high and vacancy rates well below national averages leading to upward pressure on rent levels in some locations. Bristol As of July 2015 there was a retail vacancy rate of 7.2%. Over the last 12 months the retail vacancy rate for Bristol hasn t changed significantly. North Somerset As of January 2015 there was a retail vacancy of 13% in Weston-super-Mare town centre. This is a 0.3% decrease on the reported figure for April It should be noted that a significant proportion of the vacancies are within the wider town centre area, the primary frontage is performing better. South Gloucestershire As of June 2015 the retail vacancy rate had decreased marginally 5.5% to 5%. The trend continues in South Gloucestershire of smaller high streets and town centres seeing longerterm unoccupied premises. b) Tourism Indicator 2 nd Quarter 2015 % Change on 2 nd Quarter 2014 Direction of Change on 2 nd Quarter 2014 Visitors to attractions in the West of England* 909, Total Room Sales (Bristol) 427, Source: Destination Bristol Notes: *Number of visitors to attraction in the West of England equals the sum of visitors to attractions in Bath and Bristol. Past additions of the Quarterly Bulletin have also included data for rural Somerset, Wiltshire and Gloucestershire; however the most current data wasn t available at the time of publishing. In order for the data 5

7 to be comparable past data from for rural Somerset, Wiltshire and Gloucestershire has been omitted from this bulletin. In Q2 of 2015 the number of visitors to attractions in the WE decreased on the same quarter for 2014, decreasing by -7.2%. However, room sales were up on the same period for 2014 by 3.9%. The West of England is in a strong position to target both the domestic and foreign holiday market due to its diverse offer, from the historical World Heritage City of Bath, the cultural vibrancy of Bristol, traditional seaside of Weston-super-Mare and beautiful surrounding English countryside. Graph 2: Visitors to attractions in the West of England 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Source: Destination Bristol 6

8 Graph 3: Room Sales by Quarter in Bristol Based Hotels and Guest Houses 500, , , , , , , , ,000 50,000 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Source: Destination Bristol Graph 4: Total Passenger Numbers at Bristol Airport 2,500,000 2,000,000 1,500,000 1,000, ,000 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Source: Civil Aviation Authority

9 Like the rest of the visitor economy passenger numbers are prone to seasonal fluctuations with a higher number of passengers during the summer months. Quarter 1 of 2015 saw approximately 1,190,516 passengers go through Bristol Airport; this is 4.5% higher than the 1 st quarter of EMPLOYMENT /LABOUR MARKET Indicator England Apr Mar 2015 WE Apr Mar 2015 WE Apr Mar 2014 Direction of Change Employment Rate Unemployment Rate Source: Annual Population Survey, NOMIS The West of England employment rate in the year to March 2015 stood at 75.8% (approx. 528,900 people). This is an increase on the same period the previous year by 2.1 percentage points (p.p). Fluctuations in employment rate experienced in the West of England are common in city-regions during times of economic downturn and recovery. The West of England has a higher economic rate than that of England as a whole and the Core City LEP areas, but is lagging behind the average employment rate of its southern comparators. It is also worth noting that smaller areas are more susceptible to survey based confidence limits consequently the West of England seemingly experiences greater fluctuations, making the data appear jerky. The West of England unemployment rate for the working age population (16-64) in the year to April 2015 stood at 5.9% (approx. 33,000 people), a marginal increase on the same period the previous year by 0.1 p.p. The unemployment rate for the West of England consistently remains below the average for England. However in the year to September 2014 they had converged and both stood at 6.6% although this could be the result of high confidence limits for the West of England. Graph 5: Employment Rate (16-64) 8

10 Source: Annual Population Survey, NOMIS Graph 6: Unemployment Rate (16-64) Source: Annual Population Survey, NOMIS Indicator West of England June 2015 West of England June 2014 Direction of Change comparison with this month last yr Jobseeker s Allowance Claimant Count 8,758 12,787 Jobseeker s Allowance Claimant Rate Source: NOMIS, ONS As of June 2015 the claimant rate in the West of England stood at 1.4%. This is a decrease of 0.6 p.p on the same month the previous year. The West of England is continuing to broadly follow the national trends with the claimant rate for the West of England being 0.5 p.p lower than it is for England. Since February 2013 there has been generally a steady decline in the number of claimants within the West of England. However, pockets of longterm unemployment in the West of England remain. 9

11 Graph 7: Claimant Rate Monthly Time Series Source: NOMIS, ONS Indicator WE Job Vacancies Advertised Q WE Job Vacancies Advertised Q Direction of Change Job Vacancies Advertised 45,348 30,022 During Q there were approximately 45,348 online advertisements for jobs in the West of England area. This is an increase of 33.8% on the same period in Please note that the data is only representative of those jobs advertised online and may not capture job placements advertised internally within an organisation or through more traditional methods such as an advert in a shop window or through word of mouth. This more traditional form of job advertisement tends to effect particular sectors such as the construction industry and independent retailers. 10

12 Graph 8: Jobs Advertised in the West of England Quarterly Time Series Source: Labour/ Insight Burning Glass Vacancies by Occupation Sought June 2015 Occupation Advertised Vacancies Sought Occupation Ratio Occupation unknown Managers, Directors and Senior Officials 1, Professional Occupations 5, Associate Professional and Technical Occupations 4, Administrative and Secretarial Occupations 1, Skilled Trades Occupations 1, Caring, Leisure and Other Service Occupations Sales and Customer Service Occupations 1,030 4, Process, Plant and Machine Operatives Elementary Occupations 657 1, Source: Labour/ Insight Burning Glass / Claimant Count, ONS As demonstrated by the table above there is a clear mismatch between advertised vacancies and occupation sought. The bulk of advertised jobs are within professional occupations and associate professional and technical occupations, which generally require higher and rather specific skills/qualifications; however there is a significantly lower number of people currently claiming JSA seeking these types of occupations. Conversely there are a high number of people seeking lower skilled occupations, such as sales and customer service occupations. 11

13 Top 10 Occupations Advertised during Q2 of 2015 Occupation Number of Job Advertisements Programmers and software development professionals 2,988 Other administrative occupations 1,699 Nurses 1,330 Business sales executives 1,297 IT business analysts, architects and systems designers 1,032 Managers and proprietors in other services 976 Web design and development professionals 973 Human resources and industrial relations officers 944 Sales accounts and business development managers 847 Customer service occupations 796 Source: Labour/ Insight Burning Glass (1 st April th June 2015) During Q2 of 2015 the skill with the greatest demand was for Sales with a total of 2,028 advertisements citing it as a requirement. This was followed by business management (1,672 ads), Business Development (1,662 ads) and JavaScript (1,652 ads). Top 10 Skills Advertised during Q2 of 2015 Skills Number of Job Advertisements Sales 2,028 Business Management 1,672 Business Development 1,662 JavaScript 1,652 SQL 1,562 C++ 1,202 Rehabilitation 1,168 Java 1,123 Microsoft C# 1,102 Accountancy 1,043 Source: Labour/ Insight Burning Glass (1 st April th June 2015) 4. PROPERTY AND PLANNING a) House Prices Indicator West of England in March 2015 Comparison with this month last year House Prices 207,460 House Sales 1,345 Source: West of England figure calculated by the West of England Office using Land Registry Data. In March the average house prices across the West of England decreased by about 263 on the previous month of February However despite the decline on the month before this was a significant increase on the same month during the previous year increasing by 10,899. Although following a similar trend pattern to that of England and Wales the 12

14 average house prices in the West of England remain higher. It should be noted that there are marked variations between the UAs within the West of England, with average house prices in B&NES being significantly higher than the other authorities. There are also marked variations within individual authorities. Affordability Median Annual Earnings 2014 Average House Prices 2014 Ratio B&NES 26, , Bristol 26, , North Somerset 29, , South Gloucestershire 28, , Source: Land Registry; Annual Survey of Hours and Earnings, Office for National Statistics. Direction of Change In 2014 average house prices vastly outstripped median annual earnings varying from 6.4 times average earnings in North Somerset and 9.2 times in B&NES. House prices could present an issue in the West of England as economic growth could be seriously limited across the partnership area if workers cannot afford to live in the area. It could also worsen the unsustainable pattern of in-bound commuting from more affordable areas within and outside the partnership area; this in turn has a knock on effect for the success of businesses operating in the area. Graph 9: Average House Prices Annual Time Series 250, , , ,000 50,000 - West of England England & Wales Source: West of England figure calculated by the West of England Office using Land Registry Data. 13

15 b) Invest Bristol & Bath Inward Investment Projects Graph 10: Cumulative Apr 2015 March Leads Generated Projects Handled Successes Activity Apr-Jun 2014 Activity Apr-Jun 2015 Annual Target 2015/16 Source: Invest in Bristol and Bath, Agilebase database During Apr-Jun 2015, Invest Bristol & Bath (IBB) have generated 30 new inward investment leads and handled 65 active projects, generating 4 new successes. The number of projects IBB are engaged with and actively supporting has increased from the same quarter in 2014 with the team focusing on a growing number of high value, complex investors with the potential to create a large number of new jobs in the area. The number of successes in Q is lower compared to the same quarter in 2014, but success to job creation ratio has increased significantly from IBBs greater focus on securing high value success. The number of new leads generated has also slightly decreased from previous year, again with more emphasis on generating quality than quantity. IBB have adopted new categories since April that now classify early stages leads as prospects in particular when there has been no direct engagement yet with the potential investor. Prospects are not counted against IBB s new leads targets; this new approach will improve the quality of leads generated by IBB but has resulted in a decrease in numbers from previous year when similar opportunities would be counted against the target. 14

16 Graph 11: Total new jobs April June Total New Jobs Apr-Jun 2014 Apr-Jun 2015 Annual Target 2015/16 NB; job numbers are provided as an estimate of job creation over a three year period as indicated by the investing company and independently verified. Source: Invest in Bristol and Bath, Agilebase database We are increasing our jobs related outputs year on year and focusing on a growing number of large strategic projects. 257 new jobs have been committed in Q by four successful projects. In particular, one strategic investment by Rolls Royce in a new R&D facility will create 120 new jobs in the Filton Enterprise Area. Another recent major success is the opening of Spanish insurance firm Mapfre s new base in Bristol City Centre. 15

17 Graph 12: Priority sector activity Projects Handled from Apr 2014 Mar 2015 Source: Invest in Bristol and Bath, Agilebase database Graph 13: Priority sector activity Successes from Apr 2014 Mar AAE Creative Professional Services High Tech Low Carbon Other Source: Invest in Bristol and Bath, Agilebase database In Q2 2015, IBB handled 65 active projects across all five of the West of England priority growth sectors, with 4 successes. Not surprisingly, there has been a lot of activity in the Aerospace and Advanced Engineering sector which is one of the key clusters in the West of England area and a lot of activity has resulted from IBB s campaign work on this priority sector during 2014/15. 16

18 There has also been a continuous increase in projects and successes in the professional, financial and business services sector and IBB is now working on a new targeted campaign that is anticipated will substantially increase the pipeline of investment projects in this sector. Graph 14: Current Pipeline Pipeline Projects Pipeline Jobs Active Leads Active Projects Potential New Jobs Probable New Jobs Source: Invest in Bristol and Bath, Agilebase database NB; job numbers are provided as an estimate of job creation over a three year period as indicated by the investing company and independently verified. The IBB pipeline of active projects indicates there are a potential 3,650 new jobs for the region of which IBB are confident that 1,200 will land in the next year to two years. c) Commercial Data Office Take-up Indicator Q (sq ft) Q (sq ft) Direction of Change Bristol City Centre Take-up 106, ,839 Bristol Out of Town Take-up 67,365 65,716 Source: Bristol Property Agents Association Notes: Bristol out of town take up data includes South Gloucestershire and parts of North Somerset. Take up data from agents is currently unavailable for B&NES and is not comprehensive for NS although we continue to work on this and we welcome any support. Office Rents Indicator Rents Net effective ( psf) rent Q Q Q Q Direction of Change Bristol City Centre Rents a,b Bristol Out of Town Rents a,b Bath Rents b Source: a The Big Nine Regional Office Market Report, GVA b Market Monitor South West of England & South Wales 2014, Alder King 17

19 Commercial take up in Bristol City Centre totaled 159,839sq.ft in Q This is a increase on Q However, out of town take-up was marginally down. Office rents across the West of England continue to remain static on the previous quarter. This report has been produced using a variety of national and locally sourced data sets that provide an overview of the health of the West of England economy. Queries: For any queries on this bulletin please contact: Charlotte Hopley, Planning and Economic Research Officer, West of England Office Charlotte.Hopley@westofengland.org Tel: Many thanks to Damian Whittard for providing the section on Business Conditions and to all other contributors. Please note: the opinions expressed in this Business Conditions section are those of the author, and do not necessarily reflect those of the LEP 18