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Brexit delay breaks ‘false boom’ but not positivity

The Brexit extension to October has eased the pressure on manufacturers to stockpile goods, bursting a recent mini-bubble of output growth. But UK firms remain optimistic, according to the latest PMI Index.

The main theme in UK manufacturing in recent months has been accelerated stockpiling in preparation for Brexit, with record increases in both inventories of inputs and finished products. 

However, figures from the latest UK Manufacturing Purchasing ManagersIndex (PMI) for April show that the governments new Brexit extension has eased the rate of stockpiling activity. As a result, the coinciding upturn in UK manufacturing has also slowed.  

At the same time, overseas demand for UK goods decreased in April at the second-fastest pace in the past four-and-a-half years, with some survey respondents revealing that overseas clients were re-routing their supply chains away from the UK.  

The overall picture for global manufacturing remains subdued, with reports of lower demand from the EU, USA and China.  

Nevertheless, business optimism has continued to increase month-on-month, with over half of surveyed companies forecasting that their output would increase over the coming year. 

Rob Dobson, Director at IHS Markit, which compiles the PMI survey in collaboration with the Chartered Institute of Procurement and Supply (CIPS), said:  

Companies plan to use new product launches, new technologies and improved marketing strategies to drive growth forward in the coming months. However, Brexit uncertainty continues to weigh on plans, as some firms remain concerned about future growth prospects and the likely impact on output and demand from the unwinding of inventory positions later in the year. 

Francesco Arcangeli, Economist at the manufacturersorganisation Make UK, added:  

After swerving to avoid falling over the no-deal cliff-edge twice in the last two months, businesses got back to normal in April, reducing their stockpiling activities and consequently pushing production activities back to more usual levels. 

However, this slower output is also a reflection of increasingly weak demand and growing job losses. In particular, demand from overseas has been hit particularly hard with several overseas customers reducing their British supply chains to divest themselves of their reliance on the UK market. 

This is a clear wake-up call for the government to make sure that time is not wasted in solving the Brexit impasse so we can avoid another cliff-edge climb down in October. 

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