What the war in Ukraine means for food, fuel, trade and work in Greater Manchester – coming after Covid and Brexit

Business experts have given an in-depth and fascinating insight into the current state of Greater Manchester’s economy and jobs market, revealing for the first time what impact the Russian invasion of Ukraine is expected to have on life and bank balances across the region.

They describe how the continuing fall-out from the war will be felt on the shelves of supermarkets – just one of many everyday examples of how the ongoing humanitarian catastrophe in Eastern Europe is affecting life in the UK.

One expert, Dr Gordon Fletcher, said the volatility of fuel prices – and costs in general – together with a sense of ‘uncertainty’ the conflict has brought and other factors has led to ‘a mix of multiple issues coming together at the same time in an entirely negative way’.

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And Subrahmaniam Krishnan-Harihara, head of research at Greater Manchester Chamber of Commerce, said sanctions imposed on Russia would almost certainly affect the supply of commodities, fertilizer and food here.

In a special report for the Manchester Evening News we asked Mr Krishnan-Harihara and Dr Fletcher, a retail and business expert at the University of Salford Business School, to weigh up the region’s economy against the backdrop of the war, Covid and Brexit.

The Chamber say inflation is expected to peak at close to 8 per cent, describing it as the concern for households and business. Mr Krishnan-Harihara said: “In April 2021, crude oil was averaging $60 a barrel. It is now $102. As a result, energy and fuel prices are high. The Russian invasion of Ukraine has delivered both an economic and geopolitical shock, not to mention the humanitarian crisis.

“Of course, it has contributed to higher crude oil prices. In addition, the sanctions imposed on Russia will affect the supply of commodities, fertilizers and food. For instance, Russia and Ukraine both export sunflower oil and a disruption in supply means the weekly shop is more expensive.”

The cost, of course, pales into insignificance compared to the suffering of Ukrainians, but it’s one of many outcomes from the war. “For the UK, the latest geopolitical shock comes on top of Brexit and the impact of Covid. In the last 24 months, shipping costs have gone up dramatically, which means international trade has become a lot more expensive. Indeed, the UK’s and Greater Manchester’s exports have declined during the pandemic,” he added.

“Alongside the rise in prices of energy and fuel, cost of employment has shot up. Demand for talent and consequent wage inflation coupled with an increase in National Insurance contributions is likely to put further pressure on cashflow. The consequent risk for Greater Manchester is business being unable to invest in expanding productive capacity.”

Asked how the Russian invasion of Ukraine would impact business in Greater Manchester, Dr Fletcher added: “The volatility of fuel prices (and all price), the uncertainty brought by a war in Eastern Europe, the complexity of long supply chains and the ambiguity of our trading relationship with Europe.It is a mix of multiple issues coming together at the same time in an entirely negative way.

“The invasion contributes to a general sense of uncertainty around the economy and cost of living. In terms of business and in the short term, the real impact for Greater Manchester will be very small.

“UK trade with Ukraine is about 0.2 per cent of goods, which is made up of food such as wheat and materials such as iron and steel. The invasion will impact on the import of these items and depending on conditions elsewhere, could produce some shortages But the longer the situation continues the greater the potential for local disruption.”

Inflation is THE concern for households

Both were united in their belief the Covid pandemic has led to profound changes to industry and business in the region. “Many of which are permanent,” said Dr Fletcher.

“The importance of online retail has risen more rapidly than expected and really threatens more traditional retailers who do not have a compelling experiential (which can include the preference to ‘shop local’) or high-quality offering.

“Although people might complain, businesses are now more willing to jump on a Zoom call than jump in a car – a reassuring decision for the environment. In general business has accelerated because digital makes so many day-to-day activities easier with the majority of office based employees now at least tolerating these ways of working.”

Mr Krishnan-Harihara said the numbers of workers in Manchester city center ‘seems lower than it was pre-pandemic’. “Covid has brought about structural changes in the economy,” he said.

“Sectors like physical retail have shrunk, while online retail has expanded. Anecdotal evidence also indicates that the pandemic has forced businesses to accelerate technology adoption plans. How this impacts the future of work, in the longer term, remains to be seen.

“Remote working facilities also allow residents to take up jobs elsewhere, which could throw some challenges for talent acquisition and retention.”

The Greater Manchester economy, he said, was thankfully showing signs of bouncing back from the wilderness of Covid, with a caveat that the cost of living crisis would stifle public spending.

A damaged building in Hostomel, Ukraine

“Customer demand, measured both in terms of sales to domestic and overseas customers, has improved relative to both the previous quarter and the same quarter last year,” Mr Krishnan-Harihara said. “In the latest quarter, sales in all three sector groups – manufacturing, construction and services – improved. Businesses have reported healthy order books, which could sustain activity in this quarter.

“Although customer demand has recovered, many businesses report that they are struggling with sustaining cash balances, which is in turn constraining business investment.

“My view is that much of the growth we experienced in 2021 is attributable to consumer spending – pent up demand contributing to retail and hospitality spend, and built up savings being spent. However, the cost of living crisis will suppress consumer spending and we need business investment to pick up for continued economic growth.”

Dr Fletcher described the current state of the region’s economy as nervous. “The pandemic highlighted how fragile supply chains can be and how close to the edge many businesses are when they are confronted with unexpected challenges – there is a lack of resilience that exists for many reasons,” he said.

“As with the rest of the UK the cost of living crisis has been gaining pace as we exit from the pandemic. Higher fuel prices, higher broadband costs, higher council tax, higher National Insurance, higher VAT on food and drink, higher mortgage rates and higher food production costs will all effectively reduce household incomes.

“Lower income households will feel these changes in disproportionately higher ways. It is one reason why the “Vimes Boots Index” has attracted attention – the speculation originally made by author Terry Pratchett in his novels that the rich are richer because they can afford to spend less.”

manchester city center

Dr Fletcher said there was ‘clearly a Brexit impact on finding personnel’ in the hospitality sector. “The evidence over the last 12 months is that EU citizens seeking work in the UK has dropped between a third and 40 per cent from previous levels, he said, saying EU citizens often seek work in sectors including hospitality, logistics and the caring sector and that there’s been a ‘disproportionate impact on employment patterns based on ethnicity’.

“Older workers also were more likely to consider the option to retire during, or just after, the pandemic. Younger workers were more likely to have been furloughed. But these workers were also often reluctant to return after the furlough scheme ended.

“While there were many business closures, the pandemic also produced a rise in new business start-ups with 2021 producing the highest number in the 32 years of records. These changes in patterns and behavior all pull potential employees out of the pool and make it harder to recruit in all sorts of sectors.”

Mr Krishnan-Harihara said: “The impact is probably worse in cities and larger towns meaning London and Manchester are more affected than say, Wigan. Pay in the (hospitality) sector was lower than median income and the nature of the sector demands late hours and a degree of inflexibility. Perhaps, Covid and the reduction in EU workforce worsened the situation considerably.”

There’s no evidence, he went on, of redundancies increasing across the board, saying evidence has shown ‘high recruitment intentions’. A recent survey by the Chamber of Greater Manchester businesses showed close to two-thirds were trying to get new staff.

Subrahmanian Krishnan-Harihara

“Along with strong recruitment, businesses also face serious recruitment challenges,” he said. “These are not limited to hospitality or the much reported shortage of lorry drivers. It is in skilled and technical occupations like production operatives that employers have reported the most difficulties in.”

If Greater Manchester gets it right, the city region will continue to expand. “I am optimistic about the future,” added Mr Krishnan-Harihara.

“In the last two decades, the Greater Manchester economy has grown, in some years at twice the national average. Greater Manchester is popular as a destination for business despite current problems at the airport and elsewhere. There are emerging clusters in digital and tech and advanced manufacturing.

“To enable the economy to grow, there must be sustained investment in developing the talent pool, improving infrastructure and innovation. All three are pillars to leveling up the UK and if we get that right, Greater Manchester will continue to be a growth engine. “

Dr Fletcher, however, said the cost of Government borrowing during the pandemic would have an impact for years, as it must be covered through tax revenues and VAT.

But he said: “Trading out of the crisis through encouraging new start-ups, helping existing SMEs and start-ups to grow and trade internationally as well as productivity improvements through digitalisation are a trifecta that offers some glimmer of hope and an area where local councils and the Combined Authority can, and are, supporting an eventual recovery.”

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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