Brexit stockpiling begins again

The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose slightly to 48.3 in September, up from August's six-and-a-half year low of 47.4. The headline index has now remained below the neutral 50.0 mark for five successive months, its longest sequence below that mark since mid-2009.

Manufacturing production continued to contract in September, as companies cut back output in response to a further reduction in new order intakes. The investment goods sector was by far the weakest performer, seeing the steepest drops in both output and new business. This reflected, at least in part, a reluctance among clients to commit to capital expenditure due to ongoing market uncertainties (economic, political and Brexit related).

The consumer goods sector was the only category to see output rise in September, as production in the intermediate goods industry stagnated. The outlook for both sectors remained lacklustre however, as intakes of new work decreased in both during September.

Companies reported lower inflows of new work from the domestic and overseas markets, with the trend in the former especially weak. Although the rate of decline in new export business was much slower than in August, reports that Brexit uncertainty and clients routing supply chains away from the UK still impacted on foreign demand.

The ongoing weakness exhibited by manufacturing filtered through to the labour market, with staffing levels reduced at the fastest pace since February 2013. Companies reported that capacity had been reduced due to lower demand, efforts to control costs, redundancies and natural wastage. Job losses were widespread across the sector, with declines seen across the consumer, intermediate and investment goods industries and at SMEs and large-sized producers.

September saw increased levels of input buying among manufacturers. A number of firms reported that purchasing had been raised as part of restarting Brexit preparations. This was also reflected in the trend in pre-production stocks, which rose for the first time in five months. Inflationary pressures remained relatively contained, as rates of increase in input costs and selling prices both eased.

Business optimism remained at a subdued level in September, despite improving from the series-record low registered in the prior survey month. Companies reported that ongoing uncertainties made forecasting future trends increasingly difficult.

​Commenting on today’s PMI data, Seamus Nevin, Chief Economist at Make UK, the manufacturers’ organisation, said:​ “At the end of this month the UK is set to leave the EU and as the uncertainty grows, levels of output, new orders, new export business, investment and employment are continuing to fall. Were it not for the emergency stockpiling activities that took place ahead of our original EU exit date last March, the UK manufacturing sector would already be in recession. Stocks of purchases and input buying volumes have now started to rise again, as companies recommence their costly no deal Brexit contingency activities.

“Job losses are widespread across the sector as its continued weakness has seen employment fall at the most severe rate since the peak of the Global Financial Crisis. There are now roughly 126,000 fewer people working in the industry than there were in June 2016.

“UK manufacturers are also losing customers and production continued to contract in September, as companies cut back output in response to further reductions in new orders received.

“While global markets are also faltering, with orders from the USA and Asia are shrinking, and growth in the Eurozone - the UK’s biggest export market - declining slightly following last month’s improvement, anxiety about the UK’s post-Brexit trade rules is clearly the biggest factor affecting British manufacturers right now.”

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