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Manufacturing inventories at 27-year high

Manufacturers are reporting that Brexit preparations are causing a sharp rise in purchasing activity and stockpiling of inputs at warehouses, amid fears of a ‘perfect storm’.

January’s monthly Purchasing Manager’s Index (PMI), compiled by IHS Markit and the Chartered Institute of Procurement and Supply (CIPS), showed that Brexit preparations are accelerating amongst manufacturers, boosting buying activity and stocks of purchases.

Total inventory holdings increased at the fastest pace in the survey’s 27-year history, while the stockpiling of finished goods was bested only in May and December of 2018.

Where growth in new orders was reported by manufacturers, this often only reflected clients’ purchasing to build up stocks in advance of Brexit.

Overall, January’s UK manufacturing PMI was calculated at 52.8, a three-month low. Below 50 means the sector is contracting.

Duncan Brock, Group Director at CIPS, said:

“Businesses did their best to develop forward purchasing programmes [in January] 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. Supply chains were closer to breaking point with stretched capacity and delivery times 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.”

Commenting on the survey, Francesco Arcangeli, Economist at EEF, the manufacturers’ organisation, added:

“EU manufacturing PMI is also trending downwards and getting ever closer to the 50 contraction threshold. Germany moved to negative territory for the first time in more than four years and Italy remained below-50 for the fourth month in a row. Italy has now officially entered technical recession while Germany is teetering above it by an inch. Manufacturers will be concerned at the possibility of a perfect storm.”

 For help and support on how to plan for the possible outcomes of Brexit, visit www.businessgrowthhub.com/brexit.

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