Friday, August 7, 2020

Stockpiling by UK manufacturers at record high as companies brace themselves for no deal Brexit chaos

UK manufacturers prepared for Brexit by stockpiling raw materials at a record pace last month, according to research by IHS Markit/CIPS,

The report reveals that companies were stockpiling goods in January at the fastest pace in the survey’s 27-year history.

It also reveals that employment in the sector fell, and the survey warns that export orders were “near-stagnant”. It further adds that there is a risk of the sector slipping into recession.

The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) – which provides a single-figure tracker of the performance of the sector – fell to a three-month low of 52.8, down from 54.2 in December and its second-weakest reading since July 2016 (the first survey month following the EU referendum result).

The trend in production volumes was the weakest registered during the past two-and-a-half years. Although output rose solidly at consumer goods producers, this was largely o set by weaker expansion in the intermediate goods sector and the first decline in investment goods output since July 2016.

With January also seeing a marked slowdown in the rate of expansion in new order inflows, companies reporting an increase in output mainly linked this to stock-building activity. Inventories of finished goods rose at the third- fastest rate in the survey history, bested only by those seen in May and December of 2018.

Regarding the trend in demand, the rate of increase in new work from domestic sources eased and growth of new export business slumped to near-stagnation. Where growth of new orders was reported this o en reflected clients purchasing to build up stocks in advance of Brexit. The slight increase in foreign demand was linked to higher inflows of new work from the USA, Europe, Brazil and Canada.

Sector data signalled that new business inflows decreased in both the intermediate and investment goods industries. In contrast, consumer goods producers continued to see solid growth in total new work received.

Brexit preparations were also a major contributing factor underlying the trends in input buying activity and stocks of purchases. Inventory holdings increased at the fastest pace in the 27-year survey history, as purchasing volumes expanded to the greatest extent since November 2017.

Higher demand for raw materials, along with input shortages and supplier capacity issues, led to a further marked lengthening in average vendor lead times during January. Inflation of input prices eased to a 32-month low, despite higher raw material costs, suppliers raising their prices and the exchange rate. Average selling prices also increased at a slower pace.

The outlook for the UK manufacturing sector remained positive in January, with almost 46% of companies reporting they expect output to be higher one year from now. However, Brexit uncertainty, the exchange rate and signs of a European economic slowdown all weighed on sentiment. The overall degree of positive sentiment dipped to a 30-month low.

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