Record stockpiling not enough to hide manufacturing slump as cliff-edge Brexit fears heighten

Output in the manufacturing sector has plunged to its lowest point since October 2017 despite firms ramping up preparations for a no-deal Brexit, according to an industry barometer.

BDO’s manufacturing index fell 0.23 points from December to a score of 98.37 in January, its lowest level in 15 months.

Read more: UK car industry on ‘red alert’ as output and investment nosedive

Record levels of stockpiling goods was not enough to mask the decline, but researchers at the accountancy firm said the activity may mean prospects for manufacturers are even worse than the numbers suggest, presenting a “real risk” of economic contraction in the first three months of 2019.

Peter Hemington, a partner at BDO, said: “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels. So the underlying slowdown is probably rather worse than suggested by our headline figures. Stripping out the impact of these Brexit preparations, there is a real risk that the economy will contract in the first quarter.”

In the month that Prime Minister Theresa May’s hard-fought, business-backed Brexit deal was crushed by MPs, British businesses also suffered a significant knock in confidence. BDO’s so-called optimism index scored 99.98, the first time it has dropped below 100 since December 2016.

Read more: Manufacturing 'risks recession' as Brexit stockpiling hits record levels

Manufacturers’ confidence was also the worst hit, falling 0.5 points compared to a cross-sector average drop of 0.18 points.

This reflects concerns raised by manufacturers including Nissan, Airbus and Siemens, who have repeatedly warned that uncertainty over Brexit is harming companies' ability to plan for the future.