Introduction

We are living in a very volatile period for our regional economy. 

In 2014, the Key Performance Indicators (KPIs) in the North East Strategic Economic Plan aimed to focus activity on long term economic improvement following the 2008 financial crash. Since then Covid-19 and EU Exit have impacted on different aspects of the regional economy.

This year’s Our Economy covers a period in which a regional economic recovery was evident in the first part of the year, although held back by blockages in the labour market and supply chains. Along with the rest of the UK and beyond, the region ends the year imapacted by the economic shock rippling through the global economy following the war in Ukraine. 

Our Economy’s themed supplementary report on the costs of living and costs of doing business provides insight into the impact of these issues in the North East.
 

Strengthening demand

The economy bounced back strongly from Covid-19, with strong consumer demand for goods and services in the region. Google mobility data has tracked a steady improvement in monthly visits to retail and recreation locations post Covid-19, with strong consumer demand for goods and services a key part of the recovery.

The effect in each of our Local Authority areas was not even, although the evidence suggests people continuing to shop locally and online. By mid-October 2022 visits to these locations in Northumberland were 5% above pre-Covid levels, compared to 13% and 11% below in Gateshead and Newcastle respectively.

In the labour market, data tracking online vacancies suggests that demand for workers grew strongly at the end of 2021 and in the early months of 2022, with online vacancies reaching 186% of pre-pandemic levels in early 2022, before falling to 138% of thoses levels in October. 

The percentage increase was stronger than in England as a whole, although it should be noted some of these vacancies may be re-advertisements and the North East has also started from a lower base.
 

Trade and investment

Trade performance was mixed through the pandemic, with automotive manufacturing exports experiencing declining demand for new vehicles and disrupted supply chains for materials, especially in relation to semi-conductors. They have now started to recover but have yet to reach pre-Covid levels. In contrast, strengthened exports in pharmaceuticals have seen a 25% rise on pre-Covid figures.

Strong foreign investment into sectors including energy and digital also delivered a UK leading performance, outstripping the rest of country in jobs growth on a per capita basis. Some of this uplift may include delayed projects from the previous year, but Local Authorities and Invest North East England report a strong pipeline of interest.
 

Recruitment challenges

Whilst demand recovered well, the supply side of the economy has not responded as quickly and bottlenecks have created challenges for businesses and employers. The Business Insights and Conditions survey highlighted that 41% of employers were facing difficulties recruiting in the region.

Common challenges include fewer applications and those received proving to be without the skills required. There were also reported challenges in meeting pay demands in the market.
 

Key indicators

Looking at the impact on the regions KPIs, the headline target is that between 2014 and 2024, there will be an increase in the number of people in jobs in the region by 100,000, with 70% of those being in Better Jobs, an indictor which looks at managerial, professional and technical roles.

Employment data has been impacted since 2020 and this continued through last year, but with a sharp uplift this year, leaving the total still 15,000 below the pre-Covid peak.

Overall performance against the 100,000 target is that there are 54,000 more jobs in the economy compared with 2014. However, the ‘Better Jobs’ target has remained resilient with 77,000 more professional, managerial and technical roles than in 2014.  

A distinctive challenge has been the rise in economic inactivity, an area in which the region had previously been improving its performance compared with England excluding London.

The region has experienced a challenging conundrum of high demand for labour, high numbers of payrolled employees and high vacancy rates, whilst at the same time seeing both the employment rate and unemployment rate peak and then fall away with people, particularly older workers, leaving the labour force altogether. 

The causes of this are still being explored, but appear to be a combination of health challenges, including long Covid, and evidence of a trade-off for many between the income form work and the time required for caring.
 

Cost increases

Looking at this year’s themed supplementary report on the impact of inflation on the cost of living and cost of doing business, regional data from the Office of National Statistics provides an insight into the impact of the war in Ukraine and the disruption to the supply of fuel and food.

There are significant impacts on both businesses and residents. Amongst businesses:

• Costs of labour (30%) and materials (36%), and economic uncertainty (37%) were the most common challenges impacting businesses’ turnover in the North East. 
• Shortage of labour (23%) and competition (20%) have also been identified as common problems.
• 32% of North East businesses said their turnover increased in September. 23% said the price of their goods and services increased.
• Nearly half of businesses (49%) think the price of their goods and services will remain the same in November, but for those looking to increase prices, energy prices were overwhelmingly the reason (45%).

Amongst residents:

• Median salaries in the North East have grown by 31% since 2014, slightly behind the UK average (33%) and a slower pace than many of the key products and services over that period.
• 88% of North East residents say the cost of living has increased. 92% said food prices have increased, and 80% said gas and electricity bills have increased.
• Over half said they are spending less on essentials and using less fuel. 
• Just under a fifth have used savings and/or credit as a result of the cost of living crisis.