Yahoo Finance Manufacturers stockpiling parts at near record pace to prepare for Brexit
UK manufacturers are frantically stockpiling parts ahead of March’s Brexit deadline to ensure production is not disrupted by Britain’s exit from the European Union.
Data giant IHS Markit on Monday (2 January) published its latest survey of purchasing managers in the manufacturing sector. The purchasing managers index (PMI) showed that levels of stock rose at their fourth-fastest level in 27 years in December.
Rob Dobson, a director at IHS Markit, said in a statement: “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.”
Many UK manufacturers use a so-called ‘just in time’ supply chain, where parts needed for production are delivered very close to the time they are actually needed. This cuts down storage costs.
However, there are concerns that a disorderly, no-deal Brexit could disrupt supply chains and therefore delay or even stop production. In the case of car manufacturing, this could cost hundreds of millions of pounds a day.
A ‘no-deal’ Brexit looks increasingly likely and the government told businesses to prepare for such a scenario last month.
James Smith, a developed markets economist at ING, said in an email: “There’s little doubt that we will see more and more firms implementing ‘no deal’ Brexit preparations, given the current impasse in Parliament.
“A survey conducted a few weeks ago by the CBI found that only 41% of firms had carried out contingency plans at that point in time, suggesting that there is still quite a bit of scope for companies to take action.”
The stockpiling spike helped the PMI reading come in at 54.2 in December, IHS Markit said. Anything above 50 signals growth, while below signals economic contraction. December’s reading was a 6-month high.
Dobson said: “Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete.”
In October, the EEF, which speaks for over 20,000 UK manufacturing businesses, called for a 5-year Brexit transition deal to allow manufacturers time to adapt their supply chains.
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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.
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