Stockpiling frenzy drives UK factories ahead of Brexit: PMI

FILE PHOTO: Staff work on the Jaguar XJ production line at their Castle Bromwich Assembly Plant in Birmingham
FILE PHOTO: Staff work on the Jaguar XJ production line at their Castle Bromwich Assembly Plant in Birmingham November 29, 2011. REUTERS/Eddie Keogh LM1E7BT1G8U01/File Photo

April 1, 2019

By Andy Bruce

LONDON, (Reuters) – Factories in Britain stockpiled for Brexit at an explosive rate last month, unlike anything seen before in a major rich economy, pushing manufacturing growth to an unexpected 13-month high, a survey showed on Monday.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) rose to 55.1 from 52.1 in February, confounding all forecasts in a Reuters poll that had pointed to a reading of 51.0.

The headline figure far exceeded readings from the euro zone, where a global slowdown has left factories in a slump.

But British manufacturers are increasingly worried that their surge of activity, fueled by preparations to leave the European Union, will make way for a sharp decline later, survey compiler IHS Markit said.

Lawmakers rejected Prime Minister Theresa May’s Brexit deal for a third time on Friday, leaving Britain’s withdrawal from the EU in turmoil on the very day it was supposed to leave the bloc.

British politicians now have until April 12 to come up with an alternative, after which the country could leave the EU without a deal to ease its transition — something most economists think will harm the economy.

That risk prompted British factories to ramp up stocks of parts and finished products at a record pace in March to ease any disruption to supply lines.

The PMI’s gauge of stocks of factory purchases, which feeds into the headline index, rocketed to 66.2 from 59.9 in February, the highest seen in a Group of Seven rich country since IHS Markit’s records started in 1992.

IHS Markit said this would limit future growth.

“The stock-building boost introduces a major headwind for demand, output and jobs growth moving forward,” Rob Dobson, director at IHS Markit, said. “Manufacturers are already reporting concerns that future trends could be constrained as inventory positions across the economy are unwound.”

Stockpiling is also likely to reduce manufacturers’ operating profit, leaving less money for investment even in the event that Brexit goes smoothly from here.

Factories stemmed two months of job cuts and there was a small rebound in export orders after they fell in February. Still, IHS Markit said there were signs that customers in the EU were starting to switch away from British suppliers.

“It looks as if the impact of Brexit preparations, and any missed opportunities and investments during this sustained period of uncertainty, will reverberate through the manufacturing sector for some time to come,” Dobson said.

(Reporting by Andy Bruce; Editing by Toby Chopra)

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