Stockpiling to recommence?
As a heatwave grips the country, we now know who the new Prime Minister will be – Boris Johnson. It will come as no surprise therefore, that once again Brexit is on the tip of everyone’s tongue.
The UK is currently scheduled to leave the EU on 31 October and Boris has said this will happen “do or die” after the UK delayed the original Brexit date at the end of March earlier this year. As we know in the lead up to the original date, manufacturers across the UK took to stockpiling in preparation of any disruption to trade. It was this activity that boosted the sector to a 13 month high.
Since then businesses have chosen to run down their stocks and this combined with a slowdown in global trade and continued Brexit uncertainty (also known as no progress!) means that order books are shrinking at their fastest pace since the financial crisis according to the Confederation of British Industry (CBI).
Orders, employment, investment, output and business optimism all appear to be on the decline in the manufacturing sector. The CBI have therefore urged the new Prime Minister to end the Brexit uncertainty, get a deal done and press on with domestic priorities, such as improving infrastructure.
Manufacturers now face the decision of whether to recommence stockpiling or rearrange production schedules to avoid possible disruption and a worst-case scenario come 31 October. As we mentioned in our article on stockpiling earlier this year, there will also be an immediate impact upon supply chains and money being tied up in stocks – if there is any?
The nightmare before Christmas?
A second round of stockpiling could also be a costly exercise. Some businesses experienced steep warehousing rental increases after the decline in April, resulting in an increase in the price of stockpiling goods and materials in the future. Businesses will also face the issue of warehouse space being at a premium in the run-up to the Christmas period. Therefore stockpiling this time around presents both a cost challenge and a practical challenge.
Some manufacturers in the car industry also took the decision to close their warehouse in April – effectively bringing forward the summer holiday – in preparation of the previous Brexit deadline disruption. Further shutdowns in November will surely not be possible unless of course you can convince employees to have an early Christmas break and actually work over Christmas? Bah humbug.
Get the deal done
We would therefore join with the CBI and urge the new Prime Minister to get on with Brexit, agree a deal before the 31 October and allow the UK to exit in an orderly fashion. Then the UK can concentrate on improving the sector by:
- Making the apprenticeship levy system fit for purpose
- In turn resolving the skills shortage
- Investing in infrastructure and encouraging investment in innovation
This in turn will improve the UK and the sector’s confidence in our government and hopefully ensure we see a consistent period of UK manufacturing growth.
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