U.K. Manufacturing Contraction Slows Amid Brexit Stockpiling

(Bloomberg) --

U.K. manufacturing almost returned to growth last month as firms ramped up stock building ahead of the Brexit deadline.

IHS Markit’s Purchasing Managers Index unexpectedly rose to 49.6 in October, indicating a sharp slowing in the pace of contraction. Even so, it remained below the 50 level that indicates expansion for a sixth month, extending the longest slump since 2009.

Firms reported weaker inflows of new business, especially from the domestic market. That was only partially offset by an increase in new export orders as clients based in the EU brought forward purchases before Britain’s aborted departure, previously planned for Oct. 31. Employment fell for a seventh month.

“The underlying picture looks even darker than even these disappointing headline numbers suggest,” said Rob Dobson, director at IHS Markit. “It looks as if the specter of uncertainty will cast its shadow over manufacturing for the remainder of 2019.”

Key Insights

• New export business rose for the first time in seven months
• Stocks of finished goods increased, growing at the fastest pace since April, as firms across the consumer, intermediate and investment goods industries built up inventories
• The October Brexit deadline was the main driver of the increase in stock holdings, IHS Markit said
• Job cuts were linked to lower demand, softer client confidence, non-replacement of leavers and staff redundancies. Some firms reported that Brexit uncertainty had resulted in hiring freezes
• The data was collected from Oct. 11-28, before the confirmation of the latest Brexit extension and the passing of the Early Parliamentary General Election Bill by the lawmakers

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• Markit is due to publish similar indexes for the U.K.’s construction and dominant services sector next week

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