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UK manufacturers stockpile raw materials

Posted on 14 Mar 2019 and read 1811 times
UK manufacturers stockpile raw materialsFebruary saw manufacturers continue to implement plans to mitigate potential Brexit-related disruptions, with purchasing activity scaled up to stockpile raw materials, leading to a survey-record expansion in input inventories.

The uncertain outlook also impacted on business optimism and employment, with confidence at a series-record low and the rate of job losses hitting a six-year high.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) fell to a four-month low of 52.0 in February, down from a revised reading of 52.6 in January (originally reported as 52.8).

The PMI is currently at its second-lowest level since July 2016 — the month following the EU referendum (a reading above 50 indicates an expansion of the manufacturing sector compared to the previous month, below 50 represents a contraction, while 50 indicates no change).

Although the trend in manufacturing output improved slightly in February, this mainly reflected efforts to reduce backlogs of work and build stocks of finished products in advance of Brexit.

Growth of new order inflows eased to near-stagnation, amid signs of a slowing domestic market and a further drop in new export orders. Companies linked lower overseas demand to weaker global economic growth, especially in Europe.

February also saw manufacturers cut back on employment for the second consecutive month, with the rate of job losses the steepest since February 2013.

Employee numbers were reduced across the consumer, intermediate and investment goods sectors, and at small-, medium- and large-scale enterprises.

That said, input cost inflationary pressures continued to ease in February, with the rate of increase the lowest since April 2016; and with manufacturers still able to pass on part of the rise to clients, there was a further increase in selling prices.

Rob Dobson, a director at IHS Markit (www.ihsmarkit.com), which compiles the survey, said: “With Brexit day looming, UK manufacturers continued to implement plans to mitigate potential disruptions.

"Stockpiling of both inputs and finished products remained the order of the day, with growth in the former hitting a new record high.

"The current elevated degree of uncertainty is also having knock-on effects for business confidence and employment, with optimism at its lowest ebb in the survey’s history and the rate of job losses accelerating to a six-year high.”

Stephen Cooper, head of Industrial Manufacturing at KPMG UK, said: “Overall, manufacturers won’t have much of a spring in their step, with the latest PMI results painting a negative picture across the board.

“Business confidence is at an all-time low, and manufacturers are more risk-averse — and this is having a knock-on effect on jobs.

“The rise in stockpiling activity, due to Brexit, has created artificial demand via extra inventory and has also tied up a great deal of working capital.

"This is certainly a cause for concern, as manufacturers contend with challenging domestic and global factors at an uncertain and fragile time for the global economy.”