According to James Smith, Developed Markets Economist at ING, the stockpiling frenzy of the first quarter is translating into a lull in activity for UK manufacturers in the second. But while this is partly a temporary correction, the sector faces a challenging summer as firms grapple with how best to prepare for a possible October ‘no deal’ Brexit.
Key Quotes:
“The PMI slipped from 53.1 to 49.4 in May, indicating contraction. But with ‘no deal’ fears rising now that the Conservative leadership contest is getting underway, businesses face a tricky decision over coming months. Some may opt to maintain elevated levels of stock ahead of the October deadline, which comes with an opportunity cost. Many others may be forced to unwind stock and rebuild it as we approach the Autumn, although warehousing ability will again be a major challenge – much of it is reportedly already booked up ahead of Christmas.”
“Throw in the impact of global trade tensions, and the sector faces a challenging few months. The immediate slowdown in production will contribute to a lower GDP figure for the second quarter (we’re pencilling in 0.2% QoQ), while the weaker investment climate generally will offset some of the better news on consumer spending over the next few quarters.”
“For this reason, we don’t currently expect a rate hike from the Bank of England this year. That said, recently hawkish commentary from Governor Mark Carney suggests that a November move shouldn’t be totally ruled out, should the Article 50 period be extended further.”
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