Pre-Brexit stockpiling is likely to be masking the true scale of a fresh decline in the manufacturing sector, the organisation behind a new report has warned.
Output is at its lowest point since October 2017 after a “stuttering start” to 2019, according to research from accountants and business advisors BDO LLP.
The firm’s manufacturing index, which tracks business output growth, fell by 0.23 points to 98.37 in January. The decline points to an “underlying weakness in the sector” despite manufacturers ramping up preparations for a disorderly Brexit, the firm said. It also claimed that stockpiling activity masked an even greater fall in output than suggested by the figures.
Stockpiling "has had the effect of inflating the level of activity recorded in the industry – creating a better perspective than the actual underlying demand – meaning that the slowdown is likely to have been worse than is suggested by the headline output figures," BDO head of manufacturing Tom Lawton told Professional Engineering.
Another recent report found manufacturers are stockpiling at the “highest levels on record for a major advanced economy”, The Guardian reported. Major companies including Jaguar Land Rover and Siemens UK have built up stock levels to ensure they can continue production if international trade is restricted in either the short or long term after 29 March.
Business confidence also suffered a “significant decline” in the month that saw Theresa May’s Brexit deal emphatically voted down by MPs, BDO said.
“Many of the businesses I’ve been talking to have been stockpiling goods in order to deal with the uncertainty and immediate fall-out that a no-deal exit could present,” said Lawton.
“However, most do not have the premises or funding available to stockpile to any great extent. They are becoming increasingly concerned about their risk exposure should the chaos of a disorderly Brexit be as expected.”
He added: “The government needs to take action. For the past 30-plus years, politicians have consistently underestimated the importance of manufacturing to the economy and the debacle that is Brexit shows that they have still not made progress in that regard. Politicians must stop playing party politics and turn their attention to helping these businesses that form the foundations of our heritage and economy.”
Content published by Professional Engineering does not necessarily represent the views of the Institution of Mechanical Engineers.
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