Many British firms face a difficult dilemma after stockpiling goods on an unprecedented scale in the run-up to Britain’s now-delayed Brexit date in March.
Fears of delays and shortages if Britain left without a deal sparked what ING called a “stockpiling frenzy,” as warehouses filled up across the UK with more than £6.6bn of goods.
But UK prime minister Theresa May’s decision to delay exit day until 31 October has left companies with tough choices to make about what to do with the huge build-up of supplies.
James Smith, an economist at ING, said many companies were trying to shift the surplus stock, resulting in a fall in new orders that dragged manufacturing output to a six-year low last month.
“The decision to extend Article 50 has meant firms are grappling with how best to deal with all this extra stock – and first and foremost this has resulted in a fall in new orders and therefore production,” Smith said.
He said the trend would probably continue into the summer, and predicted the UK economy would see little or no growth in the second quarter.
But he said firms could also be increasingly tempted to hold their stock the closer Britain gets to the new Brexit deadline in the autumn under Theresa May’s replacement as prime minister.
Tory leadership rivals Boris Johnson and Jeremy Hunt have both talked up their willingness to lead Britain out of the EU without a deal if necessary to get Brexit over the line as soon as possible.
That growing threat could seem firms start trying to maintain rather than shift their current stocks, despite the large costs of storage and missed opportunity for sales.
But Smith said the timing of the new Brexit date in the run-up to Christmas could make maintaining stocks even more difficult than it was in the months before the previous March deadline.
“Companies may also find it harder to source the necessary warehousing space, with much of it reportedly already booked up ahead of Christmas,” he wrote on ING’s Think blog.
“This means many firms will be forced to destock now and rebuild again as we move into the autumn.”