Agenda item

(Led by Mark Roberts, Lead Officer: Alan Reiss)

The Board considered a report of the Director of Strategy, Communications and Policing which provided an update on the latest economic and business intelligence.

The Chair introduced the report by noting the significant impact the current economic climate was having on businesses within West Yorkshire. He then asked The Head of Research and Development to present the Economic Update to the Board along with a presentation on the recent LCR Business Survey.

The Head of Research and Development highlighted to the Board several macroeconomic issues that were affecting West Yorkshire and were outlined in the report:

·       CPI inflation rose by 10.1% in the 12 months to July 22, up from 9.4% in June, and was now at a 40-year high

·       The key driver of inflation over the period was food prices, which had risen by 12.7% in the last year. The largest risers were bread and cereal, reflecting the pressure on wheat and grain prices caused by the Russia-Ukraine War. More than a quarter of the world’s wheat exports come from Russia and the Ukraine.

·       Producer input prices rose by 22.6% in the year to July 2022, down from a record high of 24.1% in the year to June. However, producer output prices rose by 17.1%, up from 16.4%. This indicated that there was still headroom for producer output prices to rise further in the coming months, allowing businesses to fully pass on the impact of inflation to consumers.

·       On 4 August 2022, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase the Bank rate by 0.5 base points, from 1.25% to 1.75%. This measure had been taken in an attempt to reduce inflationary pressures in the UK. The Bank also forecast that real wages were expected to decline by 3.5% throughout 2022 with a further 4.25% fall in 2023.

Consequently, the economic environment remained challenging for both households and businesses in West Yorkshire.

The Head of Research and Development then turned to the LCR Business Survey which was the result of fieldwork carried out by BMG Research during June to August 2022 and indicated that:

·       41% of businesses believed that their performance had improved over the past 12 months

·       43% of businesses expect the business climate to remain as it currently is, whilst 30% expect it to worsen

·       30% expect to increase employment levels over the next 12 months

·       30% of respondents expect their wage bill to remain the same over the next 12 months

·       Of the 66% that expect their wage bill to increase, over half anticipate wage increases of less than 10%

·       69% expect the prices they charge to customers to increase over the next 12 months

·       Over half expect that price increase to be between 5 and 10%

The Head of Research and Development noted that, in response, a number of Business Support Programmes had been established to support businesses during this challenging period.

Members made several observations as follows:

·       Businesses in West Yorkshire were continuing to face challenges due to the significant increases in energy costs. While this varied from sector to sector, manufacturing businesses were seeing their energy bills increase by around 250%. Work was currently being undertaken by the CBI to obtain further data from businesses within West Yorkshire to help determine the full impact of this.

·       It was noted that businesses had been given an emergency package of government support including a cap significantly reducing the price paid for energy from 1 October. However, under this plan, the support from government would only last for six months. As such, it was observed that this was creating considerable uncertainty. Several Board members shared the view that the current energy crisis is likely to last for several years and that longer term help would be required for businesses in West Yorkshire.

·       Board members expressed a collective desire to see more analysis undertaken of the impact the energy cost crisis is having on the West Yorkshire economy with assessments on what could happen in a worst-case scenario if additional help was not provided by central government. It would also be an opportunity for the Combined Authority to think about what further measures may be taken within its own remit to offer direct support to businesses.

·       It was agreed that a strong focus should be on encouraging businesses to reduce their energy output voluntarily through the adoption of sustainable technologies to help reduce their dependence on oil and gas given the fluctuating prices and the fact that the government’s intervention is an acknowledgement that the energy market was not functioning effectively.

Resolved: That the latest intelligence around the state of the UK and West Yorkshire economy, and how it relates to ongoing or future work plans be noted.