Stockpiling inflating output production in UK: survey

07 Mar '19

3 min read

The output for manufacturers in the United Kingdom remains stable and above the long-term average, but the gap between orders and output continues to hint that stockpiling activities are inflating output production levels, according to the Q1 Manufacturing Outlook survey by manufacturers’ organisation Make UK and business advisory firm BDO LLP.

The Make UK/BDO Q1 Manufacturing Outlook survey published today reports that output balances (+22 per cent) were once again higher than orders (+14 per cent) hinting that at least part of output production is related to stockpiling activities rather than actual demand coming from customers.

Although still in positive territory, manufacturing expectations in the country for the next quarter are weakening and output and order balances are projected to fall to 17 per cent and 13 per cent respectively, with uncertainty around Brexit being a prominent factor, according to the report.

Make UK represents the voice of UK manufacturing, with offices in London, Brussels, every English region and Wales.

For the first time since 2016, the balance of domestic orders is stronger than exports. Exports have been unable to recover since the very sharp drop in the previous quarter, which resulted in a disappointing end to 2018 for the sector. The UK’s export balance has been particularly badly hindered by a slowdown in import appetite from Asia, the report says.

Europe continues to be the top market opportunity for manufacturers but, also for the first time since 2016, the balance for demand coming from Europe is lower by more than half, a BDO press release said citing the report.

This drop is tied in part to Brexit uncertainty, with companies concerned that goods may be stuck at ports, as well as a more general economic slowdown happening across Europe.

Compared to the last quarter, employment and investment balances show some signs of pick-up, however employment balances are significantly higher than investment, indicating that manufacturers may be opting to hire a flexible workforce in the short-term rather than make long-term investments in a period of uncertainty.

“While it is good news that output remains stable, it is no surprise that all the economic forecasts indicate that this will not last. Manufacturing needs certainty over Brexit to boost orders and exports and to protect the jobs of nearly three million people working in the manufacturing sector across the UK,” said Make UK chief executive officer Stephen Phipson.

“Given that a large part of the trading rationale for Brexit is the ability for the UK to increase trade with other countries, the continued downward trend in exports this quarter indicates how hard this could be in practice,” said Tom Lawton, head of manufacturing at BDO.

The latest forecast, based on a soft Brexit, would see the UK economy expand by 1.1 per cent and 1.7 per cent in 2020. But for manufacturing, Make UK is predicting a 0.3 per cent contraction this year, with a bounce back of 1.4 per cent in 2020.

However, following a poor performing 2018, business environment won’t be able to recover until 2020 even if Brexit uncertainty is addressed quickly, the report added. (DS)

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