Manufacturers are stockpiling goods ahead of March’s Brexit date as the prospect of queues at Britain’s ports grows more likely.
Production remained strong across the manufacturing sector in recent months, with firms fearful that imports of raw materials will dry up in the event of a no-deal Brexit or go up in price should a deal go ahead. In response, they are making as many goods as possible and piling them up in storage, according to a quarterly survey from the EEF, the manufacturers’ trade body.
The EEF said this precautionary stockpiling had allowed firms to maintain production levels despite a sharp drop in export orders over recent months.
Stephen Phipson, chief executive of EEF, said: “The moderation in manufacturing performance over the course of this year appears to have gathered pace during the final quarter, with more clouds on the horizon than there have been for some time.
“This should come as no surprise given the significant political uncertainty at home, which is why it is essential that there is an agreement for the UK’s withdrawal as soon as possible.”
Last week the governor of the Bank of England, Mark Carney, warned against a no-deal Brexit, saying a majority of Britain’s businesses were unprepared.
He called on MPs to agree a transition deal with the EU as a minimum requirement to prevent the UK suffering its biggest recession in decades.
According to the EEF’s survey, the output order balance for the sector was +22%, which is high by historical standards and represents the ninth consecutive quarter of positive output balances.
The forecast for the next three months has drifted down to +19%, but according to the EEF, “evidence suggests current output maybe more a reflection of precautionary stockpiling rather than production driven by demand”.
Investment across the sector was also down, with the balance measure used to judge the level of spending dropping from +20% to +7%.
Manufacturers have come under pressure from subdued global growth, the fading effects of sterling’s post-referendum devaluation and more protectionist trade policies. The EEF said these factors were now taking their toll on confidence and output growth.
Tom Lawton, head of manufacturing at the accountancy firm BDO, added: “The sharp decline in export orders is a real cause for concern. There are likely to be a number of causes for the fall in exports this quarter; uncertainty over our future relationship with the EU being the main one.”
He said overseas demand helped sustain manufacturing growth over the last few years and the EU remains the most important trading block for UK manufacturers.
“It is crucial that Britain is seen to be open for business with the EU and other key global markets,” he added.
Source: TheGuardian
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