UK factories build up stockpiles before Brexit, boosting PMI

But positive impact on manufacturing survey is ‘likely to be short-lived’

Photograph: iStock

Photograph: iStock

 

UK manufacturers reported a near-record increase in stockpiling during December as uncertainty over the outcome of the Brexit negotiations reached fever pitch, according to a survey of executives published on Wednesday.

Respondents to an IHS Markit survey of purchasing managers, which was better than expected, indicated that an upswing in the index was due to stockpiling ahead of Britain’s exit from the EU rather than a more permanent improvement in economic activity.

The IHS Markit manufacturing purchasing managers’ index reached 54.2 in December, its highest level for six months, up from 53.1 in November and far above market expectations of a fall to 52.5.

“Any positive impact on the PMI is likely to be shortlived,” said Rob Dobson, a director at IHS Markit, “as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete.”

British businesses which rely on importing materials or components from elsewhere face the risk that a disruptive “no deal” Brexit could leave those imports stranded in traffic jams due to chaos at ports.

“While the headline figure might suggest industry has put its foot on the accelerator at the start of the year, the detail confirms that the rush to stockpile goods ahead of Brexit and the potential disruption from a no-deal scenario is now in full swing,” said Francesco Arcangeli, an economist at EEF, the manufacturing trade body.

Manufacturers told Markit that the increase in domestic and overseas demand was due to hoarding ahead of any Brexit-related disruption. Businesses reported the second-strongest rate of stockbuilding since the survey began in 1992.

The surprise acceleration in the UK’s manufacturing sector stands in contrast with surveys for the euro zone, also published on Wednesday, which suggested activity in the sector expanded at the slowest rate since 2016.

Mr Arcangeli added that this slowdown in Europe suggested that the “near future holds a bumpy ride for UK manufacturers”.

IHS Markit pointed out that, while the UK manufacturing PMI rose to its highest level for six months in December, during the third quarter as a whole the surveys pointed to the slowest rate of expansion since the immediate aftermath of the EU referendum.

“The trend in production volumes remained lacklustre despite the safety stockbuilding, with the latest survey consistent with a mild decrease in the official measure of manufacturing output over the final quarter,” said Mr Dobson.– Copyright The Financial Times Limited 2019