Factory stockpiling at record high

1 March 2019

Manufacturers’ stockpiling of inputs rose to a survey-record high, according to the latest PMI.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index fell to 52 in February, a slight reduction from the revised reading of 52.6 in January, and the second lowest level since the month following the EU referendum in 2016. However, this is still a rise against a no change reading of 50.

UK manufacturers reported purchasing activity has increased to enable input stockpiling, continuing from record levels in January.

Efforts to mitigate potential supply chain disruptions was given as an explanation for increased stockpiling of raw materials by 70% of companies that responded.

Brexit uncertainty impacted manufacturers’ optimism of future output, causing the lowest levels of sentiment in the history of the survey. Decreased trade combined with uncertainty led businesses to cut back on employment. Employees were reduced across the consumer, consumer goods sector and at SME and large enterprises, with rates of job losses at a six-year high.

Manufacturing output grew as a result of efforts to reduce backlogs of work and build stocks of finished products. Meanwhile, new orders reduced to near-stagnation due to the slowing domestic market and further drops in export orders.

Survey respondents linked reduced growth and low overseas demand to weakened global economic growth, as well as concerns about the impact of Brexit and the volatile exchange rate.  

Rob Dobson, director at IHS Markit, 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 fresh 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.

“Official data confirm that manufacturing is already in recession, and the February PMI offers little evidence that any short-lived boost to output from stock-building is sufficient to claw the sector back into growth territory.”

Duncan Brock, group director at the CIPS, said: “Though the index number remained steady above the 50 mark, the underlying reasons for its steadfastness were less encouraging. Firms said they were stockpiling raw materials and finished goods to keep their businesses viable in the coming months. Stocks of purchases also rose at the fastest rate since the survey started in 1992 as the fear of customs delays, tariffs and a no-deal scenario felt real for many.

“In summary, the march of the makers has turned into a painful crawl where only certainty about the Brexit way forward can ease the sector’s pain.”

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