Record stockpiling continues to buoy UK

Posted on 11 Apr 2019 and read 564 times
Record stockpiling continues to buoy UK A marked upturn in the pace of manufacturing growth was indicated by the IHS Markit/CIPS UK Manufacturing PMI (www.ihsmarkit.com) rising from 52.1 in February to 55.1 in March, its highest reading since February last year (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).

Key drivers of the upturn were the largest monthly rise in factory output since May of last year, and by far the biggest jump in firms’ inventories ever seen over the 27-year history of the survey.

However, both developments reflected firms and their customers stepping up their preparations for the UK’s scheduled withdrawal from the EU, for which no agreed deal between the UK and EU was in place during the period of data collection.

The survey’s output index rose to a 10-month high, with around one in three companies reporting increased production compared with one in-six reporting a decline.

Historical comparisons with official data from the ONS suggest that the March reading is indicative of manufacturing output growing at a quarterly rate of about 0.5%, providing the first positive growth signal since last November.

However, with some 42% of those firms that gave a reason for higher production in March attributing the improvement to pre-Brexit stockpiling by customers, the survey findings indicate that the production trend could weaken in coming months, as this temporary boost moves into reverse.

The pre-Brexit boost was concentrated among larger companies, which reported the biggest surge in production since late 2017; smaller manufacturers reported only a marginal rise in production on average, as their new orders fell
for a fourth successive month.

Helena Sans, head of manufacturing at Barclays, said: “Encouraging as today’s figures may appear, the true picture of UK manufacturing continues to be obscured by stockpiling, driven by the on-going Brexit uncertainty.

"New business may have improved from both domestic and export markets, but for that to gather momentum and translate into stronger performance, clarity is needed now to avoid the risk of prolonging a more cautious and tentative approach to much-needed investment.”

Justin Benson, head of automotive at KPMG UK, said: “KPMG’s recent manufacturing report findings suggest that while many of Britain’s makers are prepared or preparing for Brexit, the uncertainty is preventing longer-term investment decisions, and this puts a question mark over whether this PMI increase is sustainable.

"Long-term investment is crucial . . . as future investment in UK manufacturing is the key to sustaining profitable growth.”

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