A no-deal Brexit is already causing inventory fears and stockpiling within UK companies
Companies could be preparing to stockpile nearly £40bn of goods to combat a no-deal Brexit, according to a think tank.
The economic effects of the build-up and subsequent running down of inventory either side of the 29 March exit date could cause a mini-recession in the final three quarters of 2019.
The Centre for Economics and Business Research (CEBR) calculated that if companies stockpiled three months’ worth of raw materials and semi-manufactures usually imported from the EU, plus one month of finished manufactures, it would amount to £38bn in additional imports before 29 March.
This trade would be “reduced by an equivalent amount” for the rest of 2019. “This makes a mini-recession almost inevitable,” said CEBR founder Douglas McWilliams.
Separately pro-EU campaign group Best for Britain warned the bill for stockpiling medicines, in line with health secretary Matt Hancock’s recommendations to healthcare providers, could be as much as £2bn.
CEBR said the largest cause of disruption would “undoubtedly” be raw materials such as chemicals and semi-manufactures, including car and aircraft components. Of the £260bn of goods imported from the EU last year about £100bn fall into these two categories.
The think tank said there was already evidence of stockpiling, with inventories rising in the second quarter of this year at a greater rate than GDP, although it is unclear whether this is because of Brexit.
ONS figures show goods imported from the EU increased by £10.9bn in the 12 months to July 2018 compared with the previous year, while they have only grown by £3.9bn for countries outside the EU over the same period.
Meanwhile, TGI Fridays switched a number of suppliers from overseas providers to UK ones in the wake of the Brexit vote, its procurement and supply chain director has said.
Speaking to SM, Alyson Scott said the crash of the pound following the referendum added £6m in extra costs to the business.
“I had my boss, the CFO, asking me what I was going to do to mitigate that £6m,” she said. “We had to think outside the box.”
The restaurant chain has reduced portion sizes and re-engineered some items, such as substituting full fat sour cream and mayonnaise for low fat options, to cut costs.
It also moved contracts back to the UK, including a steak contract from Uruguay that saved £800,000 (although this contract has since returned to the Uruguayan supplier) and a potato skins contract. Supply chain initiatives have so far managed to reduce the £6m extra cost to £1.4m.
Separately, the government has said it will replace EU public procurement portals with a domestic service should the UK fail to negotiate a Brexit deal.
A domestic e-notification system will replace current EU systems the Official Journal of the European Union (OJEU) and Tenders Electronic Daily (TED).
Sue Arrowsmith, professor of public procurement law and policy at the University of Nottingham, said if the UK was no longer beholden to OJEU procurement regulations after Brexit, it would give the UK “greater flexibility” to simplify procedures in a way that makes buying easier.
See CIPS latest Brexit survey results.