U.K. Factories Stockpile at Record Pace as Brexit Jitters Grow

(Bloomberg) -- U.K. manufacturers are building up stocks at the fastest pace on record as concerns about Brexit intensify.

Companies’ inventory holdings grew in January at the quickest rate in the 27-year history of IHS Markit’s survey, the group said in a report Friday. Meanwhile, Markit’s sector-wide Purchasing Managers Index fell to a three-month low of 52.8, putting manufacturing on course to act as a drag on growth in the first quarter.

U.K. Factories Stockpile at Record Pace as Brexit Jitters Grow

The pound weakened after the data was published, trading 0.3 percent lower at $1.3071 as of 9:38 a.m. London time.

The findings add to evidence that, as politicians remain deadlocked, firms are increasingly protecting themselves against the risk of the U.K. crashing out of the European Union on March 29 without new trading arrangements in place.

Companies are stockpiling everything from medicines and textbooks to ice cream and prosecco. The biggest supermarket companies this week warned the government of significant disruption and rising food prices if there is a no-deal outcome.

Key Insights

  • The overall reading was less than the 53.5 forecast by economists, and the second lowest since July 2016.
  • Expansion in output and new orders both slowed in January, while the sector also saw job cuts for only the second time since the middle of 2016.
  • Optimism among firms slipped to a 30-month low as Brexit and the slowdown in Europe weighed on sentiment.
  • “With neither of these headwinds likely to abate in the near-term, there is a clear risk of manufacturing sliding into recession,” said Rob Dobson, Director at IHS Markit.

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  • Business lobby groups this week expressed their continued frustration after Prime Minister Theresa May ripped up her Withdrawal Agreement and promised to go back to Brussels to renegotiate. They said the continued uncertainty would mean companies will be forced to activate contingency plans and funnel jobs away from Britain.
  • The surveys are among the last key data points before the Bank of England announces its next interest rate decision and forecasts on Feb. 7.
  • Markit is due to publish similar indexes for the U.K.’s construction and dominant services sector next week.

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