U.K. Factories Show Brexit Pessimism as Stockpiling Hits Record

(Bloomberg) -- U.K. manufacturers stepped up their preparation for a chaotic Brexit in February, building up stockpiles at a record pace.

The increase in inventories came as companies' optimism dropped to the lowest since at least 2012 and the rate of job losses in the sector reached a six-year high, according to a IHS Markit's survey Friday. The firm's sector-wide Purchasing Managers Index fell to a four-month low of 52 -- the second lowest level since the 2016 referendum.

While prospects of a delay are increasing, the U.K. is still due to leave the European Union at the end of this month. Almost 70 percent of the companies offering a reason behind the build-up of stocks attributed it to Brexit, Markit said.

Key Insights

• Business optimism fell to the lowest level since it was first measured in July 2012, with companies citing concerns over Brexit, exchange rate uncertainty and slower global economic expansion.
• Manufacturers cut employment for a second straight month, with losses coming throughout the sector.
• Growth in new orders fell to a near-stagnation last month, amid signs of a slowing market in the U.K. and a drop in export requests.
• While output grew slightly, this was mainly connected to firms rushing to reduce backlogs of work and build up stocks before the U.K.'s exit date, Markit said.

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• Speaking in Parliament earlier this week, Bank of England Governor Mark Carney said that U.K. firms are hampered by a lack of warehouse space, and their stockpiling efforts may be inadequate for sever disruption in the case of a no-deal Brexit.
• Markit is due to publish similar indexes for the U.K.'s construction and dominant services sector next week.

--With assistance from Mark Evans and Harumi Ichikura.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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