‘Shocking’ slowdown leaves factory activity at a seven-year low – live updates

The UK economy has had an up-and-down 2019 so far, with first-quarter growth stimulated by companies preparing for Britain’s expected exit from the EU.

After the delay, the second quarter saw a sag, with companies burning through their stockpiles.

That dropsent the UK economy into contractionduring the second quarter, putting Britain on track for a technical recession if the shrinking continues.

Wide expectations were that the October Brexit deadline would prevent this, as companies would once again begin stockpiling.

Pantheon Macroecnomics ’Samuel Tombs says that may not be the case just yet, however. He writes:

The renewed fall in the manufacturing PMI in August — to its lowest level since July 2012 – indicates that support from another round of no-deal Brexit preparations currently is too modest to insulate UK producers from the global downturn. ..

… With only two months to go until the Brexit deadline, the boost from stockpiling appears to have been surprisingly meagre. The stocks of finished goods balance rose only to 52 .0 in August, from 51 .8 in July, while the stocks of purchases balance increased only to 49 .8, from 49 6. By contrast, these balances picked upfour monthsbefore the original Brexit date in March. All this suggests that the boost to GDP growth in Q3 from stock-building won’t be as big as it was in Q1. That said, GDP data showed that U.K. firms returned stock levels to near-normal levels in Q2, so we still expect some boost from stockpiling to emerge soon.

PMI data show little pre-Brexit stockpiling by UK manufacturers at present. Note the boost began four months before the March deadline. That said, this jars with GDP data, which showed a big drawdown in stocks in Q2 & thus scope for another build in Q3. Don’t write off Q3 GDP yetpic.twitter.com/0Wuu0DvJbz

– Samuel Tombs (@samueltombs)September 2, 2019

Incidentally, if all this talk of PMI has got you reaching for Google, here’s an explanation of what the figure tell us:

• An investor’s purchasing managers’ index (PMI) primer