The West Midlands economy has recovered to above pre-pandemic levels for the first time, according to the West Midlands State of the Region 2026 report. However, deepening inequality, poor health, child poverty and housing pressures risk preventing hundreds of thousands of residents from sharing in the positives of improved growth.
The report, produced by the West Midlands Combined Authority's research and insights team, warns that a growing divide between places and communities benefiting from recovery and the 'left behind' could blight the region if the gap is not reduced. Economic output has returned to above pre-pandemic levels, business confidence is improving, and the region continues to attract high levels of private investment and research and development, says the report. But the position remains 'fragile'.
Key Challenges Identified
Long-term sickness, below average rates of healthy life expectancy, shocking child poverty, housing insecurity and educational inequalities are among the most serious problems identified. More than one in three children are living in poverty across the region, rising to two in three in some of the most deprived neighbourhoods, particularly in Birmingham. Meanwhile, some 7,383 households including more than 15,000 children are in temporary accommodation because of a lack of social and affordable options.
These are no longer outlying social issues, says the report. There are deep economic factors that restrict the number of people able to work and raise productivity and living standards.
Reasons for Optimism
The regional economy has recovered from the disruption caused by the pandemic, while the number of high-growth firms increased by 11.7% in the last year, outperforming comparable city regions. The West Midlands also remains one of England's strongest areas for private-sector research and development and continues to attract substantial foreign investment. But productivity remains a concern. Gross value added (a measure of economic output) per hour worked fell by 2.4% in 2023, while GVA per job fell by 3%.
Growth is also geographically uneven, with Birmingham driving most of the uplift. Some parts of the Black Country and other communities have seen less improvement in living standards. The report warns that without action, this could create a cycle in which the economy continues to grow while too many residents remain unable to participate in or benefit from that growth.
Booming Industrial and Research Sectors
Several of the West Midlands' key industrial sectors are expanding rapidly. Advanced engineering recorded a 9% increase in GVA between 2022 and 2023, alongside an 8% increase in productivity per worker. Health and Medical Tech performed even more strongly, with output increasing by 53%, although productivity per worker fell slightly. Other sectors have struggled. Smart Energy Systems recorded a 19% fall in output, while exports across the region fell by 6.2%. The report says the figures demonstrate both the potential and volatility of the region's cluster-based economic strategy.
Alarm Bells Ringing
One of the starkest warnings concerns economic inactivity caused by long-term illness. The rate has risen sharply since the pandemic and remains significantly higher than national levels. The report says poor health is now a central economic challenge because people who are unable to work reduce the available workforce while also putting pressure on household incomes and public services. Healthy life expectancy is also falling. The report estimates that women spend around 24 years of their lives in poor health, compared with 19 years for men. The result is a population that may be living longer but spending a greater proportion of those years in poor health. For the West Midlands, the report says, tackling health inequalities must become part of the region's economic strategy rather than being treated as a separate issue.
Educational inequality remains another major concern. Outcomes remain below national averages at several stages, particularly at GCSE level, with disadvantaged pupils, children with special educational needs and disabilities and some ethnic minority groups facing particularly significant gaps. Apprenticeship starts remain 31% below their level a decade ago, despite signs that the decline has begun to stabilise. Among 16- and 17-year-olds, the proportion classified as not in education, employment or training, or NEET, is 6.93%, compared with 5.6% across England. The report also highlights areas where youth unemployment exceeds 20%. It identifies a combination of factors behind the problem, including skills mismatches, poor mental health, caring responsibilities, unstable housing and a lack of suitable entry-level employment. The concern is that young people who struggle to make the transition from education into sustained work can become trapped in economic inactivity at an early stage of their working lives.
Housing Remains a Major Dividing Line
Housing affordability is another major source of inequality. Median house prices range from approximately £200,000 in Sandwell to £329,000 in Solihull, with affordability worsening across all local authorities. Across the WMCA area, households spend an average of 29.6% of their income on rent. In Solihull, that rises to 36%. The report also identifies differences between ethnic groups, with ethnic minority households spending more on both rent and mortgages than White British households. Housing pressures matter beyond the property market, the report argues, because people who cannot afford to live near areas of economic opportunity may also face greater difficulty accessing employment. Transport connectivity becomes part of the equation and a potential barrier if not done well.
Infrastructure Offers Grounds for Optimism
There are signs that the region is building the infrastructure needed for its next phase of growth. Metro extensions, new railway stations, improvements to bus services, walking and cycling schemes and other transport projects are moving from planning into delivery. Digital connectivity is particularly strong, with 94% of the region covered by gigabit broadband. The West Midlands is also described as leading England in access to 5G. Major development areas including the UK Central Gateway, investment zones in Birmingham and regeneration projects in the Black Country could unlock tens of thousands of new jobs and homes. The challenge will be ensuring that those opportunities reach communities currently furthest from economic prosperity, says the report.
'Young and Diverse' a Major Strength
The West Midlands' population is one of its greatest potential assets, the report states. The region is among the youngest and most ethnically diverse parts of England, giving it a large potential workforce and a strong pipeline of future talent. But this advantage can only be realised if educational, health and employment inequalities are addressed, says the report. Its overall conclusion is 'cautiously optimistic'. The foundations for growth are stronger, investment is returning, businesses are expanding, infrastructure is improving and several high-value sectors are performing strongly, the report found. But the next stage of the region's development will be judged not just by how quickly the economy grows, but by how widely the benefits are shared. The West Midlands now needs to turn economic momentum into rising living standards across all communities, particularly those currently experiencing the greatest disadvantage.
