Storage fills at fastest pace in almost 30 years, as UK manufacturers build a buffer of products and components in the lead up to Brexit, as IHS Markit/CIPS stats show.
The monthly IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) showed an ongoing increase in stockpiling of finished goods at warehouses in January, the third highest monthly increase after March and December 2018. And in preparation for Brexit, manufacturers have continued to increase purchases of raw materials and inputs for production, adding to stockpiling at warehouses, as the graph below shows.
The results are based on monthly surveys of manufacturing buyers, and indicate the direction of change compared to the previous month. They show stocks of: investment goods, such as machinery used in production; intermediate goods, like a completed gearbox awaiting installation in a car; consumer goods, covering anything from washing machines to loaves of bread for household use; plus figures of the overall manufacturer stocks.
Rob Dobson, director at IHS Markit, says: “Stocks of inputs increased at the sharpest pace in the [survey’s] 27-year history, as buying activity was stepped up to mitigate against potential supply chain disruptions in coming months.
“There were also signs that inventories of finished goods were being bolstered to ensure warehouses are well stocked to meet ongoing contractual obligations.” (see graph below)
Stocks of purchases is just one of five indices that create the IHS/CIPS UK manufacturing PMI. The overall index dropped to a three-month low of 52.8 in January, down on 54.2 in December and against a no-change reading of 50. Other results from the index showed that growth in new export business slumped in January to almost stagnation. The slight increase in foreign demand was linked to the US, Europe, Brazil and Canada, it found.
For intermediate and investment goods, new business flows decreased, while there was solid growth in consumer goods.
Brexit and signs of a European slowdown showed “there is a clear risk of manufacturing sliding into recession”, Dobson says.
Duncan Brock, group director at CIPS, commented on the index, saying: “Brexit blight strikes again with the weakest performance in manufacturing production since July 2016 and optimism withers away under the weight of uncertainty as the UK teeters on the edge of departure from the EU.
“Businesses did their best to develop forward purchasing programmes to avoid potentially disappointing clients and in case of a bad Brexit outcome with some of the sharpest rises in raw materials and finished goods stockpiling since the survey started in January 1992.”
Brock points out that supply chains are closer to breaking point and capacity and delivery times are lengthening again for the 33rd month. “This begs the question of how much longer suppliers can deliver and businesses can retain stocks for every eventuality,” he says.
Vendor lead times also increased in January, according to the index, with higher demand for raw materials, input shortages and supplier capacity issues. And, despite higher raw materials costs, input prices eased.
While positive sentiment fell to a 30-month low, almost 46% of businesses in the index expect output to be higher this time next year.
The average PMI score during the last quarter of 2018 was the weakest since quarter three of 2016, the first results since the Brexit referendum, with 2018’s average (53.9) down on 2017’s (55.9).