The UK economy benefited from a sharp one-off boost to growth in the first quarter of the year as manufacturers stockpiled ahead of a Brexit that never came.
Data released by the Office for National Statistics (ONS) revealed that gross domestic product (GDP) rose by 0.5% during the first three months of 2019; this compares with a growth rate of 0.2% in the final quarter of last year. While this clearly represents a strong rebound in growth, the ONS cautioned that the rise was driven by stockpiling as manufacturers rushed to deliver orders before the original 29 March Brexit deadline.
Indeed, the data revealed that manufacturing output jumped by 2.2% in the first quarter, the fastest rate of growth recorded in the last 20 years. This sharp expansion was not a surprise as business surveys had previously revealed how manufacturers had been building up stocks of goods in case the UK left the EU without a transition deal, which it was feared could result in chaos at the UK’s borders.
However, the fact that many businesses did bring activity forward in preparation for Brexit does mean that stocks of finished goods now stand at historically high levels. Stock levels are therefore likely to be run down over the coming months and data from the latest monthly Confederation of British Industry (CBI) Industrial Trends Survey suggests that this process has already begun.
The CBI survey showed that the monthly order book balance fell to -10 in May from -5 in April, its lowest level since October 2016. This suggests that British factories have geared down from their rush to stockpile before the Brexit deadline, a move that will inevitably have a negative impact on UK economic growth during the second quarter of the year.