UK manufacturers reported a record rise in stock holding in December as businesses and clients prepared for Brexit.
According to a survey by IHS Markit and the Chartered Institute of Procurement and Supply (CIPS), the Purchasing Managers’ Index (PMI) in December was at 54.2 in December, compared with 53.6 in November.
The average PMI reading during quarter four of 2018 was the weakest since Q3 2016 (the quarter containing the first survey conducted after the EU referendum). The average posting during 2018 (53.9) was also below 2017 (55.9).
IHS and CIPS said the rise in the PMI level during December was mainly driven by stronger inflows of new business and a solid increase in stocks of purchases. It was also said that movements in both mainly reflected Brexit preparations by manufacturers and their clients. Output also increased, but at a slower pace than during November.
New orders also grew to a 10-month high in December with improved demand from the USA, Europe, China, India, Brazil and Africa. Manufacturers surveyed said increases in both domestic and overseas demand were due to clients purchasing to build up safety stocks to lessen potential Brexit disruption.
Rob Dobson, director at IHS Markit, said: “Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete. The trend in production volumes remained lacklustre despite the safety stock-building, with the latest survey consistent with a mild decrease in the official measure of manufacturing output over the final quarter.
“Uncertainties regarding Brexit disruption on supply chains and the exchange rate are also weighing on business confidence. Although manufacturers forecast growth over the coming year, confidence remains at a low ebb. Manufacturing will therefore be entering 2019 on a less than ideal footing with Brexit uncertainty having intensified considerably.”
Duncan Brock, group director at the CIPS, added: “Preparation and mitigation were the key activities in the manufacturing sector this month resulting in a small improvement in overall activity. Businesses stockpiled raw materials and finished goods at near survey-record rates in readiness for possible Brexit-related supply chain disruptions.
“Though the overall index figure was higher than last month, this should be viewed with some scepticism. Whilst the road to Brexit remains mired in the mud of indecision and disagreement, there is likely to be some correction in the sector this year as Brexit buffer stocks are depleted and overall output could fall.”