A challenging global economic context
While there was recovery in the national economy during 2021, after the negative growth in 2020 associated with the economic restrictions of global pandemic
lockdowns, the current national economic outlook remains challenging and uncertain - and will likely impact on Coventry and its residents.
This time last year the outlook was challenging after businesses and economic activity had taken a large hit, and the extent of the recovery and the speed in which it would come was unclear. The economy has grown gradually but notably in the last year, with spending and other economic activity coming back after COVID restrictions.
At the end of 2021/22 (end of March 2022) nominal national GDP was 11% higher than it was at the end of 2020/21, a real growth rate of 8.7% after taking away the effect of inflation. These are very high annual growth figures compared to normal, however this bounce back comes after significant negative growth in the previous year and the annual growth rate will not sustain. It is estimated that at the end of March 2022 real GDP was 0.7% higher than pre-pandemic levels.
However, growth in the local economy has slowed since 2016, putting the local economy in a worse position from which to recover from COVID-19 and to be
resilient to the current challenges. Nonetheless, local labour market data shows that the net effect on households overall has been less significant so far;
employment and unemployment rates amongst Coventry residents did not change significantly in 2021 and are only slightly worse than they were before the
pandemic. Also, average wages of Coventry residents in employment have continued to increase. Median earnings of Coventry residents in employment (part-time
and full-time together) grew by an estimated 5% last year from £24,645 in 2020 to £25,795 in 2021, a faster growth rate than national and regional averages
and on the back of increases also in 2020.
National GDP growth has been slowing in recent months, in fact starting to fall in March and April 2022. Growing inflation threatens to have a depressive effect on economic activity and thereby GDP growth, with increasing prices threatening household budgets. Consumer spending that was returning after pandemic constriction will likely stall again as people reduce discretionary spending with the prices of essentials growing rapidly. Increasing costs will also affect local businesses.
The headline national inflation rate – that is, the rate at which prices are rising, has been increasing gradually for the last year and reached 7.8% in April 2022 with predictions of further increases. This had been driven by, but not limited to, increases in the prices of energy, fuel, and food. Real incomes are likely to fall, affecting Coventry residents' quality of life. This 'cost of living crisis' is likely to have an impact on a wide variety of households and the local economy, along with significant public health implications.
The overall effect may vary by industry in Coventry, the businesses in the city that rely on discretionary household spending on things that might be considered 'luxuries' in the coming months might be disproportionately affected - for example, parts of the hospitality industry might be vulnerable to further damage to add to the pandemic impact suffered.
We will have to wait and see whether the current economic challenges, including widespread industrial action, will affect employment in Coventry and whether
real wages will start to fall if price rises that are affecting residents become higher than wage increases.
