UK manufacturers resume no-deal Brexit stockpiling

Unlikely to substantially boost growth, given limited warehouse capacity before Christmas

In anticipation of the impending Brexit deadline at the month’s end, British manufacturers have intensified their stockpiling activities due to escalating concerns about potential disruptions to the UK economy.

In September, UK factory output experienced a surge, as reported by IHS Markit and the Chartered Institute of Procurement and Supply (CIPS), driven by companies hurrying to procure goods and materials to mitigate potential border delays.

Despite the renewed stockpiling efforts following a summer lull, the survey revealed a fifth consecutive monthly decline in factory output, marking the longest downturn since the 2009 recession. The recent push to accumulate supplies ahead of Brexit contributed to a rise in the IHS Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) to 48.3 in September, up from August’s six-and-a-half-year low of 47.4. Nevertheless, it remains below the 50.0 threshold, indicating contraction rather than growth.

In September, UK manufacturing output contracted for the fifth consecutive month.

Rob Dobson, Director at IHS Markit, commented, “The influence of Brexit-related stockpiling was overshadowed by declining demand from other clients, partly attributed to the redirection of supply chains away from the UK.”

Global manufacturing output has witnessed a decline in recent months, largely due to the prolonged US-China trade conflict, which has dampened business investment and weakened export demand. In the eurozone, manufacturing output has reached its lowest levels in seven years, pushing major economies like Italy and Germany towards the brink of recession.

Indicating the persistent decline in UK manufacturing, companies reported decreases in output, new orders, and export business throughout September. Employment levels also experienced the sharpest decline in six years, with approximately 8,000 jobs lost in September, compared to around 6,000 in August.

Amidst increasing political turmoil in recent months, UK firms have intensified their preparations for a potentially detrimental no-deal Brexit at the end of October.

On Tuesday, Greggs, the bakery chain on the high street, announced its initiative to accumulate supplies of crucial ingredients and equipment that may face potential disruptions. The company has secured warehouse space for rental and will commence stockpiling certain longer-life products obtained from Europe, such as bacon and tuna. Additionally, Greggs has started sourcing all of its cheese and a majority of its sugar from the UK to mitigate the risk of potential disruptions.

The CEO of Greggs, Roger Whiteside, stated that the company would face challenges in replacing perishable items like tomatoes and lettuce. As a result, the company may need to resort to alternatives or potentially halt the sale of products reliant on items experiencing delays at ports.

Certain businesses have initiated the process of storing beer, wine, and spirits to ensure a continuous supply of alcohol during the Christmas season. Analysts caution that the Brexit deadline coincides with heightened warehousing activity preceding the festive season, creating additional challenges for businesses in planning for both events.

Businesses throughout the UK hurried to accumulate stock before the initial Brexit deadline on March 29, which contributed to a surge in economic growth earlier this year. Subsequently, when Theresa May extended the deadline until the end of October, companies chose to deplete their stockpiles, resulting in a decline in economic output and pushing Britain perilously close to recession.

James Smith, an economist at the Dutch bank ING, mentioned that the second round of stockpiling was unlikely to have as substantial an impact. He added, “While inventory levels are still considered relatively high, there is also a growing constraint on warehousing space, especially given the proximity to Black Friday and Christmas.