British manufacturing in surprise surge as firms ramp up stockpiling in preparation for no-deal Brexit
- Latest purchasing managers’ index at a six-month high of 54.2
- IHS Markit say clients building up safety stocks to mitigate Brexit disruption
- Manufacturers’ inventories rose at the fourth-fastest rate in survey’s 27-year history
British manufacturers are stockpiling goods at near record rates in preparation for a calamitous no-deal Brexit, according to a survey released today.
‘Manufacturers linked increases in both domestic and overseas demand to clients purchasing to build up safety stocks to mitigate potential Brexit disruption,’ the economic consultancy IHS said.
It’s Markit/CIPS UK manufacturing purchasing managers’ index showed a reading of 54.2 last month, higher than the 53.6 recorded in November, and a six-month high.
A new survey from IHS Markit shows that uncertainty over Brexit drove firms to build up stocks
A figure above 50 indicates growth and economists were expecting a reading of 52.5.
Businesses importing goods from the EU will face severe disruption in the event of a no-deal Brexit, which is looking more likely in the face of opposition to Prime Minister Theresa May’s withdrawal deal.
What is the PMI?
The purchasing managers’ index (PMI) is an indicator of economic health for manufacturing and service sectors.
The PMI is based on a monthly survey sent to senior executives at more than 400 companies. The PMI is based on five major survey areas:
– new orders
The surveys include questions about business conditions and any changes, whether it be improving, no changes or deteriorating.
The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month.
A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change. The further from 50 is greater the level of change.
The survey showed that uncertainty over the impact of Brexit influenced manufacturers’ purchasing activity, stock levels, and business confidence in December.
Buying volumes increased as companies implemented plans to reduce supply-chain disruption if Britain crashes out of the EU without a deal.
As a result, inventories rose at the fourth-fastest rate in the survey’s 27-year history and a rise in finished goods stocks in December was the second-strongest since the survey began in 1992.
Rob Dobson, director at IHS Markit, which compiles the survey, said: ‘December saw the UK PMI rise to a six-month high, following short-term boosts to inventory holdings and inflows of new business as companies stepped up their preparations for a potentially disruptive Brexit.
‘Stocks of purchases and finished goods both rose at near survey-record rates, while stock-piling by customers at home and abroad took new orders growth to a ten-month high.’
Firms also cited Brexit and exchange rate uncertainties as weighing on their outlook for the year ahead.
‘Uncertainties regarding Brexit disruption on supply chains and the exchange rate are also weighing on business confidence. Although manufacturers forecast growth over the coming year, confidence remains at a low ebb,’ Mr Dobson added.