A sale to dwarf Black Friday…

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It’s a good thing – on the face of it… UK manufacturing is growing: the Purchasing Managers’ Index from IHS Markit and CIPS hit a 13 month high of 55.1 in March with companies stepping up production and hiring staff.

But it’s worth looking at the reason for this – and it is essentially defensive. Companies are building up stocks to avoid problems in case of a bad Brexit.

Malory Davies, FCILT, Editor.

Malory Davies, FCILT, Editor.

IHS Markit found that the rate of increase in stocks of purchases hit a survey record high for the third month running in March.

“A similar story was told for stocks of finished goods, which rose at a record pace for manufacturing as a whole and at, or close to, record highs across the three product sectors [capital, consumer, and intermediate goods].”

That is all very prudent. The problem is that a lot of capital is now being invested in maintaining higher inventory levels than should really be necessary.

Earlier this year, Professor Richard Wilding warned that over-reacting to the uncertainty could result in stockpiling becoming a bigger problem than even the most chaotic Brexit.

Of course, it’s not just the cost of the inventory itself. Not surprisingly, warehousing costs have been rising. According research by real estate advisor Altus. “The cost of warehouse space rose by as much as a quarter in the final three months of 2018.”

And Altus executive vice president Robert Hayton warned: “Stockpiling for Brexit may have been the prudent thing to do with all the uncertainty but there could well be tax consequences given the effect it has had on rents.”

It’s impossible to predict when uncertainty over Brexit will end, but the cost of both inventory and the warehousing to hold it will continue to mount.

If there is a bad Brexit, then these big stockholdings should come in useful. But if there is a soft Brexit, there is going to be a lot of unwanted inventory sitting around. And to clear that we could see Brexit Sales that dwarf Black Friday.

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