Booming UK factories 'holding breath' over Brexit deal repercussions

Tom Belger
·Finance and policy reporter
·3-min read
Shipping containers are unloaded from a cargo ship at the Port of Felixstowe in Suffolk. Shipments of personal protective equipment have been clogging UK ports, causing huge delays compounded by retailers and manufacturers importing goods for the Christmas shopping rush.
UK factories saw output expand in December. Photo: PA

UK manufacturing is “holding its breath” over the impact of the Brexit trade deal, after factories overcame COVID 19’s resurgence and ports chaos to record their strongest month in three years.

A poll of manufacturing published on Monday found the biggest proportion of firms reporting rising business levels last month since 2017.

A rush by both UK and European firms to stockpile goods ahead of a widely feared no-deal Brexit boosted order books. Manufacturers themselves also stockpiled ahead of widely feared disruption, building up supplies “to one of the greatest extents in the 29-year survey history.”

“Bunged up ports caused backlogs to rise to levels not seen for a decade and optimism for the year ahead dropped to a six-month low as the challenges for manufacturers just kept coming,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), which compiles the survey.

Almost half of survey participants have seen longer wait times for supplies amid delays caused by ports congestion.

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Rising container volumes linked to the pandemic and the run-up to Christmas increased the strain on ports and shipping firms worldwide, with Felixstowe facing among the most severe disruption.

The purchasing managers’ index (PMI) survey was carried out before France’s border shutdown exacerbated problems, causing a build-up of thousands of trucks in Kent and beyond.

It was also carried out before the UK and EU agreed a post-Brexit trade deal. The agreement preserves tariff-free trade in goods, but paves the way for a flurry of new administrative barriers to trade in both directions.

“The sector is holding its breath until the terms of the new deal are fully understood and whether new business can be sustained in the same way in a post-Brexit marketplace,” added Brock.

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Survey responses are turned into headline figures on trade levels. The final reading for factories was 57.5 in December, on an index where figures above 50 show most firms expanding and below 50 show decline.

Experts expect headline figures to weaken in the months ahead as stockpiling winds down, with the wider UK economy suffering from ongoing tighter COVID-19 restrictions. Prime minister Boris Johnson has warned tougher measures are likely as Britain struggles to cope with COVID-19’s resurgence and a more infectious variant.

Similar data for the eurozone on Monday also showed a majority of factories polled expanding, with a reading of 55.2. Germany’s 58.3 reading marked a 34-month high, and firms in the seven other countries surveyed all saw growth improve on the previous month.

Eurozone companies reported job cuts for a 20th month in a row however, and UK firms for an 11th month.

“Employment continued to be cut, but this follows a similar pattern to the recovery from the global financial crisis, with the job market improvement coming later than the rise in production. Assuming output growth can be sustained, jobs should soon follow,” said Chris Williamson, chief business economist at IHS Markit.

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