Brexit Stockpiling Leads to Growth in UK Economy

Squirrel Stockpiling FoodOn the surface, Brexit has been – and continues to be – an absolute shambles, and one that our generation will be judged harshly by for decades to come.

And yet, oddly, there has been some positivity to come from it; albeit indirectly.

Many British-based manufacturers were recommended to stockpile goods ahead of the uncertainty of the EU divorce plan, and that has paid dividends for the UK economy, which has shown clear growth in the first quarter of 2019.

The economy, measured in Gross Domestic Product (GDP), among other things, grew by 0.5% in the period January-March, which was up 0.3% on the closing quarter of 2018 according to the Office of National Statistics.

And in further good news, the UK manufacturing sector grew by its largest amount since way back in 1988.

An Oasis of Recovery Or Just a Mirage?

Oasis in Desert

So what has caused such unexpectedly positive news? Well, there is an element of cloak-and-dagger to the stats, with manufacturers both stockpiling and rushing through orders to beat the original March 29 deadline for Brexit deadline.

The pharmaceutical industry also saw better than expected growth of 9.4%, which again can be attributed to government officials requesting firms in the sector to stockpile key medicines in the wake of a No Deal Brexit.

That would have led to lengthy delays at UK borders, which would have impacted upon how quickly vital medicines were received by GPs and doctors’ surgeries.

Unfortunately, there are downsides to such an approach. With manufacturers ramping up their output, that led to an increase in imports of key parts and machinery required to satisfy their orders.

And that meant the total trade deficit – which is basically the difference between goods and services imported against exports – increased by a ridiculous £8.9 billion to a total of £18.3 billion in that first quarter.

The ‘trade in goods’ deficit also reached record levels of £42.3 billion, with exports reaching £91.4 billion and imports at a lofty £134.8 billion for the period between January and March.

Should we be looking positively at the figures then, or are they further reason for concern. Samuel Tombs, the chief economist at Pantheon, believes, sadly, that it might be the latter, with ‘external forces’ the driver behind the manufacturing growth as opposed to any upturn in demand.

“We continue to doubt that precautionary stockpiling for a no-deal Brexit will boost GDP, because manufacturers primarily are buying imports and are tying up cash that otherwise might have been used for investment,” he told the BBC.

“All told, then, the PMI should not instil any confidence about the near-term outlook for the manufacturing sector.”

And the director at IHS Markit, Rob Dobson, believes that any gains could prove short-lived. “Manufacturers are already reporting concerns that future trends could be constrained as inventory positions across the economy are unwound,” he reported.

“It looks as if the impact of Brexit preparations, and any missed opportunities and investments during this sustained period of uncertainty, will reverberate through the manufacturing sector for some time to come.”

Driven to Distraction

Car Factory

One example can be seen in the car industry, where firms imported more vehicles for sale than usual from EU-based suppliers. This was a pre-emptive move, as European trade becomes more expensive for UK-based firms when the value of the pound drops – as has been a common theme throughout the Brexit shenanigans – or when tariffs are imposed.

The flipside is that businesses in the industry have lots more cars to sell….but demand has hardly improved given the tough financial circumstances that many families find themselves in.

Supply is high, demand is low….you don’t need a Business Studies A-Level to know that’s not exactly how successful markets operate.

The threat of a No Deal Brexit was particularly damaging to the car industry, with a huge percentage of stock sold in this country imported from the EU.

Tariffs, trade barriers, border controls….these are all words that have put the industry on edge, and such paranoia – whether misplaced or not – has led to price increases up and down the land.

It is essential that Theresa May and her cronies leave the European Union with some kind of customs union or trade deal, otherwise the car industry on UK shores could explode. Ridiculous prices, catastrophic losses and job cuts are not anybody’s idea of a good time.

So take the current economic rosiness with a pinch of salt; there are still plenty of tough times around the corner I’m afraid.