Finance: Local economy set to rebound

Karl Edge: Manufacturing ‘uptick’

Local economy set to rebound in the summer

A combination of Covid restrictions lifting, pent-up consumer demand, accumulated excess savings and a range of government incentives are expected to spark a strong lift-off for the West Midlands economy this summer.

This will see the region’s gross domestic product (GDP) grow by a massive 9.5 per cent in 2021 (up from 8.9 per cent forecast in September 2020) and 6.4 per cent in 2022, allowing the economy to reach its preCovid level by the end of the year, according to the latest analysis in KPMG’s UK Economic Outlook.

KPMG says the sharp contraction the West Midlands suffered last year was mainly caused by falls in the wholesale and retail trade, although as manufacturing operations were not restricted after the first lockdown, recovery was able to begin quickly.

‘Locally we’ve seen a notable uptick in performance within the manufacturing industry’

However, the longer-term outlook for the manufacturing sector remains uncertain, largely due to the ongoing impact of Brexit on automotive manufacturing, and the West Midlands’ post-pandemic economy is expected to be more reliant on the region’s growing IT and financial services sectors.

The outlook for all regions and nations of the UK is one of a recovery in both 2021 and 2022, although at varying speed, with strongest growth expected in the West Midlands, London and the East of England.

This reflects the uneven impact of the pandemic across sectors and regions, with a relatively quick bounce-back in manufacturing leading much of the early gains in output. However, as the economy re-opens and restrictions lift, the shift towards a services-based economy will resume across most of the UK.

Karl Edge, Birmingham office senior partner and Midlands regional chairman, said: “Our forecast shows that the pace of economic recovery for the West Midlands has picked up speed, with the region leading the way with the highest projected growth of any UK region for 2021.

“Whilst the focus for the last year has largely been on resilience and recovery, businesses have also sought growth where possible, and locally we’ve seen a notable uptick in performance within the manufacturing industry.

“Our local IT and financial services sectors are also gaining traction and we expect to see further growth supported by these sectors going forwards.

“As restrictions continue to ease, I believe that the Midlands has a bright outlook ahead as an attractive place to live, study, work and visit, being wholly supported by a range of quality businesses, educational institutions, vibrant communities and milestone events like the Commonwealth Games 2022 and Coventry as the UK’s City of Culture 2021.”

Region still an attractive proposition for investors

The West Midlands’ attractiveness as an investment destination proved resilient amid the Covid-19 pandemic, with the region seeing only a slight decline in projects and an increase in its share of the UK market in 2020, according to the EY 2021 UK Attractiveness Survey.

The West Midlands secured 61 inbound Foreign Direct Investment (FDI) projects in 2020, down 4.7 per cent from the 64 achieved in 2019.

This was a much smaller contraction than the 12 per cent decline in overall UK projects (from 1,109 to 975) and the 13 per cent decline in overall European projects (from 6,412 to 5,578).

The good performance relative to the rest of the country helped propel the West Midlands’ share of UK projects from 5.8 per cent to 6.3 per cent.

The region secured the fifth highest number of projects among all UK regions and nations in 2020 – maintaining its 2019 ranking. London secured the most projects in the country with 383.

The West Midlands’ top sector was digital technology, which saw 11 projects in the region in 2020, slightly down on the 13 in 2019 – a decline in line with UK trends.

The next largest sectors were transportation manufacture and supply with nine projects (down from 13), agri-food with seven (up from six), machinery and equipment with seven (down from 13) and business services with four projects (up from three).

Projects were most likely to involve sales and services activities (29 projects, up from 23 in 2019). Meanwhile, manufacturing activities have seen a continuous decline in the West Midlands over the last four years, and although there were 11 manufacturing projects in 2020, this is significantly below the 2015 high point of 38. Logistics activities doubled from five projects in 2019 to 10 in 2020.

Simon O’Neill, office managing partner at EY in the Midlands, said: “Against the backdrop of a global pandemic, the West Midlands delivered a positive year for FDI in 2020. The impact of both the pandemic and the UK’s departure from the EU can be seen in how some of the region’s key sectors and activities have performed too, particularly the big increase in logistics projects as businesses in the West Midlands have reacted quickly to the changes around them.”

Birmingham was the West Midlands’ leading location for FDI projects and the only place in the region to feature in the top 10 UK towns and cities, having secured 26 projects in 2020 – a figure above its ten-year average of 19.4. This put the city in fourth position for all UK towns and cities, behind London (383), Edinburgh (36) and Manchester (35). Coventry recorded 10 projects, the joint 12th highest figure in the country.

Firm has something to Crowe about

The Midlands office of national audit, tax, advisory and risk firm Crowe has supported 14 deals worth £112m in the past 12 months.

The corporate finance team led by partner Andy Kay and including associate director Chasz Coulsting and managers Jason Daft and Phoebe Turner, provides advice and transaction support services to management teams, owner-managed businesses and private companies.

Mr Kay said: “Despite the challenging circumstances created by the pandemic, corporate finance activity in the Midlands has remained busy, and I would like to pay tribute not only to my Crowe colleagues, but also fellow professionals in other advisory firms, who have all pulled together in trying conditions to facilitate these deals.”

Key deals in the past year include acting for Newman and Spurr on the sale of the business to Qinetiq plc and providing transaction support to Grandeco on its acquisition of Holden Decor.

The Crowe team also advised Inspiration Care during the company’s acquisition by Choice Care, and acted for a 25 strong local pharmacy chain on its multimillion pound merger with an industry consolidator.

Mr Kay added: “As mid-market specialists, we are ideally placed to advise on mergers and acquisitions, disposals, management buy-outs and fundraising.

“Throughout the Covid-19 pandemic, we have also been instrumental in helping our clients obtain funding support, with a constantly updated flowchart that provided a unique real time guide to what was available, how to access it and the tax and cashflow implications going forward.

“We continue to support our clients as the economy begins to emerge from lockdown and will be advising on opportunities for growth, whether organically or via the mergers and acquisitions route.

“While many businesses have struggled in the past 15 months, others have been able to maintain an even keel and build a strong balance sheet which will prove to be an invaluable war chest to capitalise on opportunities to develop both market share and product and service capabilities and capacity as they occur.”

Ideally placed: Andy Kay

Credit where it’s due

As the government bans on key debt enforcement actions expires, West Midlands businesses should seize the initiative and start conversations with their creditors over arrears built up during the pandemic.

This is according to the Midlands branch of insolvency and restructuring trade body R3, which says that any rush by creditors to recover what they are owed too quickly might force the companies which owe them money out of business.

R3 Midlands chairman Eddie Williams (pictured), a partner at PwC in Birmingham, believes that constructive and honest conversations between groups such as suppliers and customers, and businesses and the taxman will be vital to businesses’ prospects of continuing to trade and to wider economic recovery.

He said: “Businesses have built up debt over the pandemic for very understandable reasons, so it will be important for them to have productive and frank discussions with those to whom they owe money about the best way to proceed.

“Creditors who stubbornly insist on imposing unrealistic debt repayment plans may well find that this is far from the best way to recover their funds, and that a little cooperation will go a long way towards securing longer-term repayments.”