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--BOE, Other Survey Evidence Shows Strong Stockpiling But Unwind Looms
By David Robinson and Irene Prihoda
     LONDON (MNI) - A boost to upcoming first quarter UK GDP data from a likely
inventories surge as firms brace themselves for Brexit will be a sideshow from a
monetary policy perspective as the effect will unwind sooner or later, MNI
analysis of survey evidence stripping out underlying stock building suggests.
     After removing adjustments to reconcile different data sets, underlying
numbers suggest inventories decreased in Q4 2018 following jumps in Q2 and Q3.
But subsequent survey data, including a bounce in the Stocks (current situation)
component of the CBI Industrial Trends survey, which tends to fit well with
official figures, indicates stockpiling will increase in Q1 2019, adding to GDP.
     The CBI survey, which asks if companies consider finished goods stocks to
be adequate, dipped below long-term averages from April 2018, and touched the
year's low in December, before bouncing back towards average from February 2019.
     Businesses face extreme Brexit uncertainty as deadlines shift for the UK's
Withdrawal Agreement with the EU to be passed and avert the risk of no-deal. An
original March 29 Brexit date was pushed back to April 12 and the UK no wants an
extension to June 30, meaning businesses may need to keep inventories high.
     Amit Kara, Associate Research Director at the National Institute of
Economic and Social Research and a former BOE economist, says even if firms or
consumers maintain elevated inventories the effect should be a one-off.
     --ELEVATED UNCERTAINTY
     "In the big scheme of things, at least as far as monetary policy is
concerned, it all gets washed out in a couple of quarters," he said.
     If uncertainty stays high, "Then you have a stable level of stocks, albeit
at a higher level than what you used to have before," Kara said.
     The data reflects changes in levels of stocks, so, if in coming weeks firms
replace any they use, rather than adding to them, GDP numbers may show little
change in inventories after the Q1 boost.
     Another offsetting factor for the BOE is that much of the inventory may be
of imports, which will not buoy GDP, although even if all of it was imported
there would be a lift to some sectors.
     "To the extent that there are services involved ... that could be
transport, other auxiliary stuff, storage, all of that is positive for measured
GDP growth," Kara said.
     --STOCKPILING SURPRISE
     Bank staff, already cognisant of the trend, estimated in March that Q1
growth would be 0.2% on the quarter, down from 0.4% in Q4. Even if stockpiling
happened faster than the BOE expected it may do little more than support its
forecast for low but positive Q1 growth at a time when some pundits see the
economy stalling.
     Purchasing Managers Indices from IHS Markit have shown surging inventories.
March manufacturing PMI hit a 13-month high of 55.1 with stockpiling the highest
on record. PMIs, based on qualitative responses, can exaggerate moves but there
seems little doubt the effect is real and feeding down the supply chain.
     "Companies are having to produce more to build up their stocks which is
impacting the output index and then clients are purchasing more in order to
build up safety stocks and so that obviously filters through to new orders," IHS
Markit director Rob Dobson told MNI.
     One thing continuing Brexit uncertainty does make easier for the BOE and
NIESR economists undertaking quarterly forecast rounds is that they will be able
to maintain the assumption of an orderly withdrawal from the EU, based on an
average of different soft Brexit scenarios.
     "Like everything else with Brexit you can stick with whatever flavour of
ice cream you like," Kara said.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
--MNI London Bureau; +44 0203 865 3814; email: irene.prihoda@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$B$$$,M$E$$$,MT$$$$,M$$BE$]