Market news
01.08.2019, 14:50

UK's PMI hints resumption of inventory-building process ahead of October Brexit deadline - ING

James Smith, developed markets economist at ING, notes that the UK manufacturing PMI reading came in at 48.0 in July, indicating a continued contraction in manufacturing activities.

  • "Much – if not all – of this recent weakness is linked to pre-Brexit stockpiling. Having built inventory to insulate against possible supply chain disruption, firms have been cutting back on new orders while they grapple with what to do with all the extra stock.
  • But while the PMI points to a lacklusteк start to the third quarter for manufacturing, driven partly by the global slowdown in demand - the Markit/CIPS press release suggests that the inventory story may be starting to evolve. The new 31 October Brexit deadline is drawing nearer, and firms are once again ramping up preparations for a potential ‘no deal’ scenario. Stocks of finished goods inched higher in July – albeit more slowly than earlier in the year.
  • While we may not see a full correction, we’re likely to see a reasonably sizable inventory drag during the second quarter, and overall growth will probably come in more-or-less flat.
  • The real challenge for those firms who need to rebuild stock in advance of the October deadline will be finding a place to store all the extra goods."

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