Manufacturing sector UK manufacturers' stockpiling for no-deal Brexit hit record levels
Hoarding of raw materials is highest on record for a major advanced economy
The risk of border gridlock caused by no-deal Brexit has led British manufacturers to ramp up their stockpiling efforts to the highest levels on record for a major advanced economy.
According to the monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, which is closely watched by the Bank of England and the Treasury for early warning signs from the UK economy, British factories in January raised their stocks at the fastest pace since records began in the early 1990s.
The development came as Honda, the Japanese car manufacturer that produces the Civic hatchback model in Swindon, said on Friday it was preparing to front-load some production to ensure it could ship vehicles abroad before Brexit and build up its stocks in Britain.
Jaguar Land Rover, which requires as many as 25m separate parts every day, has also begun stockpiling, while BMW plans to close its Mini plant for a month after Brexit amid fears over parts shortages.
Siemens UK, one of the largest industrial companies in the country with 15,000 staff, has begun increasing supplies of critical components used in the railway system and for food processing plants. Unilever is stockpiling Magnum ice-cream in the UK, while Tesco and Marks & Spencer are increasing stocks of tinned food.
The rush to hoard raw materials, components and finished goods with less than 60 days before the Brexit deadline marked the highest level of stockpiling activity for a G7 nation since comparable records began in 2007, in a sign of the unique risks posed to the British economy by a disorderly Brexit.
James Knightley, chief international economist at the City bank ING, said: “Manufacturing is so reliant on complex supply chains that precautionary inventory building is a necessity. After all, we are so close to Brexit day and an economically disruptive hard Brexit remains firmly on the table.”
An increasing number of companies have boosted their stocks as the Brexit deadline on 29 March draws nearer, as Theresa May pushes for last-minute alterations to the EU withdrawal agreement, despite Brussels saying it is unwilling to negotiate.
Stockpiling was most evident among food and drinks firms, as well as in the clothing, chemicals and electronics sectors, according to the IHS Markit/Cips survey.
Food manufacturers are, however, likely to find it tougher to stockpile goods given the limited shelf-life of fresh produce, raising the risk of food shortages in a no-deal scenario. Other goods are, however, easier to store for a longer periods. WH Smith is stockpiling six months’ worth of notebooks, diaries and pens, while Brompton Bicycle has built up £1m of bike parts, including wheel rims, spokes and steel.
Brexiters argue that leaving the EU without a deal would benefit Britain because firms could expand trade with non-EU countries. However, after four decades of integration with EU supply chains, mainstream economists argue it would take time to adjust and the benefits would likely fail to match those provided by the current system.
Economists believe the upturn in stockpiling could perversely provide a boost to the British economy in the final months before Brexit, although the latest snapshot from the IHS Markit/Cips manufacturing PMI showed factory output eased in January.
The PMI index slipped to 52.8 in January from 54.2 a month earlier, on a scale where anything above 50 separates expansion from contraction.
Companies reported that growth in output was mainly linked to stock-building, while growth in domestic work eased and new export business slumped to near-stagnation. Employment fell for the second time in the past two-and-a-half years.
The slowdown does, however, mirror a drop in industrial output elsewhere in Europe, as auto industry factories adjust to new vehicle emissions tests and the US-China trade dispute acts as a handbrake on growth. German factory output dropped into negative territory for the first time in more than four years, while Italy has slipped into recession.
While stockpiling has helped to support economic growth in the short term, analysts said the UK economy could suffer even in the event of a deal being struck with the EU, as companies could run down their stocks rather than place new orders.
Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said: “Contingency planning for a no-deal Brexit is providing only limited support to manufacturers at a time of weakening underlying demand, both in the domestic and export markets.”
- Share on Facebook
- Share on Twitter
- Share via Email
- Share on LinkedIn
- Share on Pinterest
- Share on WhatsApp
- Share on Messenger