Brexit preparations drive near-record increases in manufacturers’ stocks

The UK manufacturing sector has seen modest improvements in overall activity as businesses stockpile materials and goods ahead of possible Brexit-related supply chain disruptions.

According to the latest IHS Markit/CIPS Purchasing Managers’ Index, the end of 2018 saw December reach a six-month high of 54.2, up from 53.6 in November.

This rise in the PMI level during December was mainly driven by stronger inflows of new business and a solid increase in stocks of purchases.

Movements in both mainly reflected Brexit preparations by manufacturers and their clients. Output also increased, it found, but at a slower pace than during November.

“Preparation and mitigation were the key activities in the manufacturing sector this month resulting in a small improvement in overall activity,” explained Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply (CIPS).

“Businesses stockpiled raw materials and finished goods at near survey-record rates in readiness for possible Brexit-related supply chain disruptions.”

Growth of new orders accelerated to a ten-month high in December. Inflows of new work strengthened from both domestic and export markets, with the latter benefiting from improved demand from the USA, Europe, China, India, Brazil and Africa.

Manufacturers linked increases in both domestic and overseas demand to clients purchasing to build up safety stocks to mitigate potential Brexit disruption.

There were some reports that new product launches and successful promotional activity had contributed to sales growth. New export order wins were also supported by the ongoing weakness of the sterling exchange rate.

Positivity amongst uncertainty

Although manufacturers maintained a positive outlook for output in 12 months' time, the degree of confidence was only slightly above November's 27-month low.

Companies forecasting growth linked this to expected success resulting from new product launches, entering new markets, investment in equipment and planned expansions of salesforces.

However, many firms also cited Brexit and exchange rate uncertainties as weighing on their outlook for the year ahead.

Brock concluded: “Though the overall index figure was higher than last month, this should be viewed with some scepticism. Whilst the road to Brexit remains mired in the mud of indecision and disagreement, there is likely to be some correction in the sector this year as Brexit buffer stocks are depleted and overall output could fall,” Brock added.