Friday 1 November 2019 10:12 am

Brexit stockpiling fails to save UK manufacturing from recession

The UK manufacturing sector looked to be firmly stuck in recession as Brexit stockpiling could not prevent a sixth month of contraction in October, a closely followed survey found today.

Jobs, new orders and factory ouput all fell last month, according to IHS Markit’s UK Manufacturing Purchasing Managers’ Index (PMI).

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Factory bosses blamed ongoing Brexit chaos, with the UK avoiding a no-deal Brexit yesterday as the EU granted a three-month delay until the end of January 2020.

That did not stop firms from stockpiling ahead of the deadline, giving the manufacturing sector a boost that is unlikely to be repeated in November.

Business confidence improved mildly to hit a three-month high. But economic and political uncertainty continued to weigh down on manufacturers’ outlooks, with that optimism at one of its lowest levels since 2012.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, warned Brexit continued to stymy manufacturers alongside the prospect of an election in December.

“A minor uplift in overall purchasing activity did little to ease the agony for manufacturing companies in October,” he said.

“Business was still restrained by the Brexit leash, as firms were subjected to the struggle against client indecision and also the downpull of a slowing global economy.”

UK factory activity climbed from its weak level of just 48.3 in September, which put the sector on the brink of a recession.

Brexit stockpiling pushed that figure to a four-month high ahead of the 31 October departure date.

Meanwhile the industry plunged to a seven-year low in August thanks to Brexit turmoil and a global economic slowdown.

August saw the sector post a PMI score of 47.4, where anything below 50 represents a contraction.

Future for UK manufacturing ‘even darker’

Rob Dobson, director at IHS Markit, added that the future for UK manufacturing looks “even darker” than October’s numbers suggest.

“The high degree of uncertainty is hitting two areas of the manufacturing economy especially hard,” he said.

“The first is the trend in employment, as job losses resulting from disappointing sales are exacerbated by manufacturers implementing hiring freezes until the outlook clears.

“The second is the investment goods industry, where output and new orders are falling sharply as clients postpone capital spending plans.”

Rather than easing fears, Dobson said the three-month extension to Brexit coupled with a December general election will only create more problems for the sector.

“It looks as if the spectre of uncertainty will cast its shadow over manufacturing for the remainder of 2019,” he added.

Capital Economics’ senior UK economist, Ruth Gregory, concurred, saying a rates cut is on the horizon.

“If Brexit is delayed again beyond 31 January, and the economy remains weak as we expect, then we still think that the Bank of England will cut rates – perhaps by 25 basis points in May 2020.”

UK manufacturing figures ‘consistent with a recession’

Gregory sounded the alarm over the figures, warning they were “consistent with a recession in the manufacturing sector”.

She warned that “temporary factors” fuelled October’s slight pick-up from September.

“Indeed, the rise in the stocks of purchases balance from 53.6 to 55.6, presumably driven by firms stockpiling in case of a no-deal Brexit, accounted for 0.2 points of the total 1.3 point rise in the PMI,” she pointed out.

The PMI is also pointing to a 0.7 per cent quarter-on-quarter drop as the sector heads into the fourth quarter.

“Overall, then, it looks like the manufacturing sector is back in recession,” Gregory said. 

“And with the other sectors showing little growth, we are expecting the economy to expand by no more than 0.2 per cent to 0.3 per cent quarter-on-quarter.

More to follow.