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PMI rises to 13-month high on pre-Brexit preparations and
record stock-building
Larger firms see greatest boost
Producers of intermediate goods report further steep export
loss
UK manufacturing reported a surge in production and
stock-building in March as companies prepared for Brexit, but also
indicated a further switching of supply chains out of the UK by
European customers.
While the manufacturing upturn may temporarily lift economic
growth in the first quarter, longer term downside risks have
increased: the temporary boost will likely move into reverse and EU
supply chains could continue to divert away from the UK, depending
of course on the Brexit developments in coming months.
Brexit stockpiling intensifies
A marked upturn in the pace of manufacturing growth was
indicated the headline IHS Markit/CIPS UK Manufacturing PMI rising
from 52.1 in February to 55.1 in March, its highest since February
of last year.
Key drivers of the upturn were the largest monthly rise in
factory output since May of last year and by far the biggest jump
in firms' inventories ever seen over the 27-year history of the
survey. However, both developments reflected firms and their
customers stepping up their preparations for the UK's scheduled
withdrawal from the EU, for which no agreed deal between the UK and
EU was yet in place during the period of data collection.
The survey's output index rose to a ten-month high with around
one-in-three companies reporting increased production against
one-in-six reporting a decline. Historical comparisons with
official data from the ONS suggest that the March reading is
indicative of manufacturing output growing at a quarterly rate of
approximately 0.5%, providing the first positive growth signal
since last November.
However, with some 42% of those firms that gave a reason for
higher production in March attributing the improvement to
pre-Brexit stockpiling by customers, the survey findings indicate
that the production trend could weaken in coming months as this
temporary boost moves into reverse.
Manufacturers themselves were also keen to build safety stocks
of raw materials, with the Stocks of Purchases Index hitting 66.2,
far exceeding the prior survey records seen in the previous two
months. Prior to 2019, the highest this index had reached was
55.0.
Some 43% of firms reported higher stock levels against 11%
recording a decline, with around 80% of those that gave a reason
for higher inventories citing pre-Brexit stockpiling, especially
imports from the EU.
Similarly, stocks of finished goods showed the largest monthly
rise since data were first collected over 27 years ago,
predominantly driven by firms preparing for potential
Brexit-related disruptions to production.
Employment stabilised after having declined markedly in
February, though was likewise buoyed in part by firms taking on
staff to deal with the additional pre-Brexit workloads.
Brexit boost led by large firms
The pre-Brexit boost was concentrated among larger companies,
which reported the biggest surge in production since late-2017. At
the other end of the scale, smaller manufacturers reported only a
marginal rise in production on average as their new orders fell for
a fourth successive month, contrasting with ongoing order book
growth at larger firms. Inventory building was also far more
widespread among large firms than smaller companies.
Shifting supply chains
Sector divergences highlighted a potentially more ominous
adverse impact of Brexit uncertainty: producers of intermediate
goods (input suppliers to other firms) reported a far weaker order
book trend than producers of consumer goods and capital goods (such
as plant and machinery), in turn reflecting a steep drop in export
orders which was partly blamed on EU customers switching away from
UK suppliers.
Exports of such intermediate goods have now fallen for nine
successive months, with the first three months of the year seeing
the steepest quarterly decline since mid-2015.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
