By Bloomberg
January 2, 2019

U.K. manufacturers are intensifying their stockpiling efforts as they brace for a potentially disruptive Brexit.

Factories reported an almost record increase in stocks last month, IHS Markit said in a report Wednesday. New orders also picked up as firms and their clients rushed to protect themselves before the March exit date.

“There is increased concern that the U.K. could leave the EU without a deal next March and this will lead to serious disruptions,” said Howard Archer, chief economic advisor at EY Item Club.

The U.K. is set to leave the European Union on March 29, and reaching an exit agreement before the deadline remains uncertain. Crashing out of the bloc may leave the country facing a slew of new customs and border checks and other regulatory hurdles.

In December, the U.K. government stepped up preparations for a no-deal withdrawal, including asking pharmaceutical companies and supermarkets to stockpile drugs and food, and putting 3,500 troops on standby.

Brexit Preparation

For manufacturers, increases in stock holdings and a strong inflow of new orders reflected preparations from both factories and their clients, Markit said. Its Purchasing Managers Index for the industry rose more than forecast to a six-month high in December.

Even with the pick up, the overall picture in the sector remains weak. The average reading for the final three months of the year was the lowest since the third quarter of 2016. Manufacturers’ confidence levels are only slightly above the 27-month low in November, with firms citing Brexit and exchange-rate uncertainty as a weight on the outlook.

Any positive economic impact from the inventory accumulation is likely to be short-lived, according to Samuel Tombs, an economist at Pantheon Macroeconomics. Overall growth will likely be below trend in the fourth and first quarters, he said.

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