Stockpiling dominates UK factories

1 April 2019

Brexit preparations continued to dominate manufacturers’ activities in March as they tried to build inventories of both purchases and finished products, according to the latest IHS Markit/CIPS PMI.

Companies stepped up production to build-up inventories partly to prepare for Brexit and partly to meet rising inflows of new work, mainly reflecting stockpiling at clients.

The surveyed rate of increase in stocks of purchases hit a record high for the third month running in March.

Record rises were seen in the three sub-industries covered: capital, consumer and intermediate goods, while the same pattern was seen for stocks of finished goods.

These rose at a record pace for manufacturing as a whole and increased at record highs – or close - across the three product sectors.

The PMI figure itself rose to a 13-month high of 55.1 in March, up from a revised reading of 52.1 in February (originally reported as 52.0). It has now remained above the 50.0 no-change mark for 32 months running.

New business from both domestic and export markets improved and had a positive impact on staff hiring, with jobs growth recorded in contrast to reductions seen at the start of the year.

Fears surrounding Brexit continued to weigh on business sentiment during March. Although the overall degree of optimism moved slightly higher, it remained subdued.

Companies also indicated that future output growth may slacken as the current strong pace of inventory building at both manufacturers and their clients falls over the coming year.

However, 46% of survey respondents are expecting output to be higher one year from now and linked optimism to improved demand, new product launches, entering new markets and reduced Brexit uncertainty in future.

Average purchase prices in March have risen thanks to raw material shortages, inflationary pressures, Brexit and higher energy costs, though manufacturers said part of the rise in costs was passed on to clients in the form of higher selling prices.

Manufacturers' supply chains faced increased pressure which could be seen in a marked deterioration in average vendor performance.

Lead times lengthened for the forty second successive month, which manufacturers said was due to ongoing capacity pressures at vendors, strikes and delays at the Calais channel crossing, a lack of freight availability and strong demand for raw materials.

Duncan Brock, group director at CIPS, said: “Businesses on both sides of the channel intensified their efforts this month to accumulate materials with the fastest increase in the stock building of finished goods since 1992, as the UK hurtled towards the Brexit deadline.

“Firms attempted to guarantee certainty of supply, lock in good price deals and protect their operations from withering under the pressures of uncertainty as new orders from domestic and export markets such as mainland Europe rose at their fastest rate this year.”

Brock added that supply chains had paid a heavy price for this spike in activity as delivery times increased again and suppliers facing pressures over raw materials and finished goods struggled with demand and transportation issues.

“This panic-buying had a marginally positive effect on job creation however, as increased Brexit preparations required more hands on deck and some businesses were carrying on regardless launching new products and markets,” he said.

Brock said this panic-buying also led to fears that if the threat of uncertainty receded, businesses would have to heavily discount these stocks to free-up valuable operating expenses.

He said that with higher price inflation gnawing away at margins and businesses paying more for energy and raw materials, the economic burdens could deepen and job hiring strategies could be re-examined.

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