Back in 2017, during a series of local seminars, I observed that Bristol was well entrenched in the ‘real’ economy (production, distribution and consumption) and since the local real economy was well supported by positive demographics, Bristol could well prove to be a ‘Brexit-resistant’ city. I reached this this view as a result of economic tracking that I had embarked upon following the vote to leave the EU in 2016. Brexit resistant? Maybe. Covid resistant? Maybe not. The UK real economy grew by around 14% between the EU Vote to Leave and the end of 2019, while the balance sheet economy (financial and related professional services) grew by a far more modest 8%.
The Covid downturn changed the dynamics fundamentally and the downturn was of a different order altogether. Unlike other downturns, the Covid downturn was not the result of pent up cyclical forces that are usually visible well before the economic malaise arrives. Instead, at the end of Q1 20, the real economy was simply switched off, or perhaps, mothballed by government decree. The balance sheet economy was not. Office working may have been banned, but it is no surprise that traditional office based functions carried on, in large measure by remote working.
Bristol is fortunate - its well established financial and professional services sectors continued remotely, compensating in some measure, for the shutdown of nearby high value-add transport equipment manufacturing (aerospace) and port-centric distribution (automotive and container goods). Bristol Port is an important vehicle import/export hub handling 50,000 units per month. In April, the total of new car registrations for the UK as a whole fell to 4,000. Save for those parts of the real economy linked to non-discretionary spending (the toilet roll economy), the shutdown of the real economy was unprecedented and the effects startlingly visible.
Recovery from COVID-19
In nominal terms, the UK real economy has already shown strong signs of recovery. After an annualised nominal contraction of 18.7% in the first half of 2020, the real economy recovered in Q3 2020 to within 3.8% of its pre-pandemic level. A far more modest 6.7% decline of the balance sheet economy in the first half has also given way to a modest recovery and was also within 3.8% of its pre-pandemic level. The latest Q4 lockdown and tiered restrictions has reversed this progress significantly and the real economy is likely to have been hit hardest. November’s numbers show that the real economy continues to be hit hardest and the UK economy is expected to have contracted overall in Q4 2020. In mid-January, infections were slowing, a vaccination programme is underway and with over £100 billion in excess household savings accumulated during the lockdowns, a rebound, when it comes, may surprise to the upside. What could go wrong?
Brexit and the New Relationship
Over the last few months of 2020, retailers, manufacturers and other businesses dependent on imports were stockpiling goods. Container ports such Felixstowe, Southampton and London Gateway were congested and other ports such as Immingham, Teesport and Hull in the east, and Bristol and Liverpool in the west were handling the rerouted overflow. Much of this overflow traffic were routed via feeder services from Antwerp, Bremerhaven, Rotterdam and Zeebrugge. Goods shipments to and from Ireland (Northern and the Republic) were also impacted. These route diversions proved to be a foretaste of the short-to-medium-term disruptions already seen at some ports in early January. Evidence of changed trading relationships are already evident and supply chains are already shifting. As the new trade deal beds in, and as UK’s global relationships change, so new opportunities will arise across a wide range of sectors and geographies. So does the expression ‘Brexit resistant’ still apply to Bristol and the wider South West economy. Furthermore, can the economy of Bristol and the South West withstand the shockwaves created by the global pandemic?
Regional Resilience and Political Leadership
The answer to both of these questions comes down to what I call ‘regional resilience’. In a nutshell, the same factors (diversification and demographics) that led me to identify the Bristol economy as Brexit resistant will continue to provide support. An essential further dimension is being provided by ‘metro mayors’, such as Tim Bowles of the West of England Combined Authority. Regional political leadership will be increasingly necessary to reposition the regional economy as change and opportunities present themselves and to act as a regional advocate. This is especially true when thinking about how to tap into central government infrastructure investment flows, or to attract private investors to participate in development of the Bristol and South West economy. This is urgent given the Chancellor’s recent Spending Review, announcement of a National Infrastructure Strategy and a new National Infrastructure Bank. The new bank conceived as a mechanism for attracting private investment into infrastructure and regeneration is a tacit acknowledgement that the scale of investment exceeds the resources that Government can marshal.
My view remains that the phenomenal weight of global capital persists and coupled with very low interest rates, the global search for yield will ensure that funding is available for all projects of merit and scale. Private capital is also apolitical. As I pointed out in my 2020 research paper ‘Regional Revolution III – The Rise of Cross Border Investment’, unlike UK government investment which has its limits, private investment is not a zero-sum game and resources are more than sufficient to float all the boats across London and the UK regions, without any area being left behind.
*This is an updated version of an article that originally appeared in the Winter 2020 issue of Spotlight, the magazine produced by the Bristol office of Colliers International.
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About the Author
Dr Walter Boettcher is the UK Chief Economist at Colliers International. He has over 20 years of UK and European property industry experience, and extensive expertise across a wide range of property sectors and related industries. An economics graduate of the University of Texas at Austin, he received his PhD from the Faculty of Science at University College London, and is a member of Lambda Alpha International and the Society of Property Researchers. He is perhaps best known for his alternative take on property economics and investment, and is a keen proponent of UK regional development and infrastructure investment.
To get in touch, please email walter.boettcher@colliers.com.
