With stockpiling activity reaching its limit, UK manufacturing began to contract in May for the first time since July 2016 - the month directly after the EU referendum result.
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.
According to one survey, 60 per cent of British manufacturers stockpiled finished goods and materials in the run-up to the original EU departure date in March. But with Brexit delayed to at least October, this trend has now come to an end.
The latest UK Manufacturing Purchasing Managers’ Index (PMI) for May revealed that the volume of new business placed last month fell for the first time in seven months, due in part to manufacturers and their clients already having high stock levels.
Both domestic and overseas orders deteriorated, with companies reporting particularly low demand from Asia and Europe. There was also mention of Brexit uncertainty, including news of EU clients diverting their supply chains away from the UK.
A deeper look into the figures shows that much of the fall in activity was confined to the intermediate and investment goods industries, with consumer goods producers faring better.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply (CIPS), which helps to compile the monthly PMI, said:
“Concern for manufacturers has deepened this month. Supply chain managers voiced their deep anxieties over Brexit’s continuing impacts as some supply chains were re-directed away from the UK, resulting in a drop in total new orders for the first time since October. It has now become obvious that the stockpiling activities of the last few months were propping up the sector’s performance.
Meanwhile, the CBI has sent an open letter to Conservative Party leadership candidates to support business by steering clear of a no deal Brexit outcome.
Carolyn Fairbairn, Director-General of the CBI, said:
“The vast majority of firms can never be prepared for no deal, particularly our SME members who cannot afford complex and costly contingency plans. We need compromise, consensus and honesty to resolve the Brexit impasse, quickly.”
For help and support on how to plan for the possible outcomes of Brexit, visit www.businessgrowthhub.com/brexit.
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