February 1, 2019 / 9:42 AM / 19 days ago

Rush to stockpile sweeps UK factories ahead of Brexit: PMI

LONDON (Reuters) - British factories stockpiled goods in January at the fastest rate since records began in the early 1990s as they braced for a potentially chaotic Brexit in less than two months’ time, a business survey showed on Friday.

FILE PHOTO: A Bentley Motors employee works on a piece of a dashboard trim inside their factory in Crewe, Britain January 22, 2019. REUTERS/Phil Noble/File Photo

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) also showed deepening pessimism across the sector which saw output grow by the smallest amount since July 2016.

Sterling slipped against the dollar after the PMI fell to 52.8 from 54.2 in December, a three-month low and below the consensus forecast in a Reuters poll of economists for 53.5.

While better than the similar readings of manufacturing in France and Germany, survey compiler IHS Markit said the out-performance of British factories was driven by a surge in demand for stockpiling materials ahead of Brexit.

The stocks of purchases index rose to the highest level ever seen in a Group of Seven country, a record that spans more than 1,500 data points.

(Graphic - UK factories stockpile at fastest rate in G7 history of PMIs: tmsnrt.rs/2t1btEA)

“The fact that there is still at least some positive growth is almost certainly down to the biggest reading for inventory building in the survey’s 27-year history,” ING economist James Smith said.

“After all, we are so close to Brexit day and an economically disruptive ‘hard’ Brexit remains firmly on the table.”

Prime Minister Theresa May, under pressure from her own Conservative Party, wants to reopen a Brexit treaty with the European Union to replace a contested Irish border arrangement, something Brussels has rejected.

Investors have urged the government to ensure an orderly exit from the club it joined in 1973.

Almost one-in-three British companies are thinking of shifting some operations abroad because of Brexit, a survey from the Institute of Directors industry body showed earlier on Friday.

And on Thursday, figures showed investment in Britain’s car industry halved last year.

“The underlying trends in output and new orders remained lackluster at best,” Rob Dobson, director at IHS Markit, said.

IHS Markit said there was a “clear risk” that the manufacturing sector — accounting for 10 percent of British economic output — will go into recession.

Export orders were flat, the PMI showed, reflecting a slowdown in the global economy.

Slideshow (2 Images)

British factories cut jobs slightly as backlogs of work contracted at a faster pace in January and the survey’s gauge of optimism hit a 30-month low, again reflecting Brexit worries and weakening growth in continental Europe.

Easing price pressures marked a rare plus point for British manufacturers. Input costs increased at the slowest pace since May 2016, the survey showed.

(Graphic - UK factories stockpile at record rate: PMI - tmsnrt.rs/2Tl6wBX)

Editing by Toby Chopra

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