Midlands is biggest economic victim of Covid-19 lockdown

A 75pc plunge in manufacturing has cost the East and West Midlands a heavy economic price, CEBR report warns

Britain's manufacturing heartlands in the Midlands have been hardest hit by the coronavirus lockdown, according to new research which threatens Boris Johnson's bid to “level up” the regions and will pile pressure on ministers to spell out plans for a return to work.

The shutdown is costing the UK economy £2.7bn every day in lost growth as nationwide output slumps an estimated 34pc, the study by the Centre for Economics and Business Research (CEBR) and law firm Irwin Mitchell warned – with regions meant to benefit most from Prime Minister Johnson's reforming agenda hammered worst.

The East and West Midlands are most affected by the deep-freezing of the economy due to their dependence on manufacturing, which has slumped by 75pc in the wake of the outbreak. The East Midlands has suffered a brutal 40pc collapse in output according to CEBR, with the West Midlands down 39pc.

It highlights the damage which lockdown is doing to key electoral battlegrounds where the Tory landslide was forged in December.

The East and West Midlands are together home to over 600,000 manufacturing staff and are a key base for the UK’s car industry. But the sector has seen swathes of closures since March, including Toyota’s mothballing of its Burnaston plant in Derbyshire, employing some 2,600 workers.

Jaguar Land Rover has also furloughed 20,000 staff and shuttered its West Midlands sites until later this month.

Luxury carmaker Rolls-Royce is the only manufacturer to have resumed production so far, although the industry is gradually coming back to life with Aston Martin set to reopen its factory in South Wales on Tuesday. Ford and BMW are both bringing their Europan plants back online. 

Yorkshire and the Humber and the North West have suffered the next-steepest declines, with their economies cratering 37pc each.

By contrast, London is thought to have slumped by a smaller 28pc – still a drop unprecedented in modern times – as the lockdown suits its more services-based economy where staff are able to work from home.

Daryn Park, a CEBR economist, said: “Industries tend to cluster together, and hence certain regions are likely to weather the lockdown period better than others.

“London has a high concentration of financial and professional services that, to a greater extent, can continue operating under lockdown.

“The West Midlands in contrast has a high concentration of manufacturing which, as a result of a fall in demand for consumer products, has seen a subsequent fall in demand for manufacturing outputs, negatively affecting their economy.”

Make UK, the manufacturing lobby group, warned that a swift recovery is unlikely in the Midlands and called on ministers for more support as Mr Johnson prepares to set out plans to unlock the economy.  

A spokesman said: “Given the impact on the manufacturing supply chain which is likely to see disruption for some time to come, there will be a need for the Government to be creative and flexible in its approach to supporting the sector in the same way as companies.

“Any national recovery plan once we are beyond the immediate crisis must have a critical emphasis on boosting trade and upskilling the workforce, especially in digital skills which will be central to industry from now on.”

Economists have meanwhile warned that maintaining social distancing for a prolonged period could delay the recovery with a long hit to retail and a serious blow to leisure industries for the rest of this year.

Paul Dales, chief UK economist at Capital Economics, said the recession risks turning from a “tick-shaped” slump with a gradual recovery into a deeper “U-shaped” crash with dire consequences for growth and jobs.

He warned this could result in more unemployment and bankruptcies as bars, cafes and restaurants may not be able to survive with lower customer numbers.

Mr Dales said: “There were lots of cafes, restaurants, pubs and retail companies that weren’t making a huge profits before the crisis.

“If they can now only serve half as many customers as before, then they might not last long.”

Tej Parikh, chief economist at the Institute of Directors, said: “Our initial figures suggest many firms think they can operate at or near pre-crisis levels under social distancing rules, but there are significant numbers that could struggle.

“Regardless of how effectively firms can operate, low demand will continue to limit activity for some time yet.”

Additional reporting by Lizzy Burden