British firms rush to stockpile goods ahead of Brexit

PMI shows worsening pessimism across manufacturing as fears of no-deal exit rise

LONDON • British factories stockpiled goods last month at the fastest rate since records began in the early 1990s as they braced themselves for a potentially chaotic Brexit in less than two months' time, a business survey showed yesterday.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) also showed deepening pessimism across the sector, which saw output grow by the smallest amount since July 2016.

While better than the similar readings of manufacturing in France and Germany, the outperformance of British factories was driven by a surge in demand for stockpiling materials ahead of Brexit, said survey compiler IHS Markit.

The findings add to evidence that, as politicians remain deadlocked, firms are increasingly protecting themselves against the risk of Britain crashing out of the European Union on March 29 without new trading arrangements in place.

Companies are stockpiling everything from medicines and textbooks to ice cream and prosecco.

The biggest supermarket companies this week warned the government of significant disruption and rising food prices if there is a no-deal outcome.

BUILDING INVENTORY

The fact that there is still at least some positive growth is almost certainly down to the biggest reading for inventory building in the survey's 27-year history.

ING ECONOMIST JAMES SMITH

The British pound slipped against the United States dollar after the PMI fell to 52.8 from 54.2 last December, a three-month low and below the consensus forecast in a Reuters poll of economists for 53.5.

The stocks of purchases index rose to the highest level seen in a Group of Seven country.

"The fact that there is still at least some positive growth is almost certainly down to the biggest reading for inventory building in the survey's 27-year history," ING economist James Smith said. "After all, we are so close to Brexit day and an economically disruptive 'hard' Brexit remains firmly on the table."

Prime Minister Theresa May, under pressure from her own Conservative Party, wants to reopen a Brexit treaty with the European Union to replace a contested Irish border arrangement, something Brussels has rejected.

Investors have urged the government to ensure an orderly exit from the club it joined in 1973.

Almost one in three British firms is thinking of moving some operations abroad because of Brexit, a survey from the Institute of Directors industry body showed yesterday.

 
 
 

And on Thursday, figures showed investment in Britain's car industry halved last year. "The underlying trends in output and new orders remained lacklustre at best," Mr Rob Dobson, director at IHS Markit, said.

IHS Markit said there was a "clear risk" that the manufacturing sector - accounting for 10 per cent of British economic output - will go into recession.

Export orders were flat, the PMI showed, reflecting a slowdown in the global economy.

British factories cut jobs slightly as backlogs of work contracted at a faster pace last month and the survey's gauge of optimism hit a 30-month low, again reflecting Brexit worries and weakening growth in continental Europe.

These are among the last key data points before the Bank of England announces its next interest rate decision and forecasts next Thursday.

REUTERS, BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on February 02, 2019, with the headline 'British firms rush to stockpile goods ahead of Brexit'. Print Edition | Subscribe