MNI EXCLUSIVE: BOE, NIESR See Eerie Lack Of Brexit Stockpiling

-NIESR Head Chadha: "I Would Be Feeling Good" If Data Showed Pre-Brexit

Stockpiling

By David Robinson

     LONDON (MNI) - The spectre of the UK leaving the European Union at the end

of March without a deal is haunting politics but there has been scant evidence

of any boost to economic activity from businesses preparing for it by

stockpiling goods.

     Recent commentary and survey evidence from the Bank of England suggest that

some stockpiling may be delayed until closer to deadline. In an interview with

Market News earlier in December, Jagjit Chadha, Director of the National

Institute of Economic and Social Research, said stockpiling may be hampered by

financial and capacity constraints.

     "I would be more comforted if I saw it. If I saw it I would be feeling

good," Chadha told Market News.

     Government ministers this week have urged businesses to step up

preparations for a no deal Brexit but they face significant obstacles.

     "There may be this latent, common sense need to build stocks but we might

have just moved structurally to a very low level of stocks in the economy. That

is the way we do business," Chadha said.

     --JUST-IN-TIME MANUFACTURING

     A lack of infrastructure and personnel at UK ports to deal with any checks

on EU goods, a lack of warehouse space and the popularity of just-in-time

manufacturing, which did away with the need for substantial stock building, have

all created physical barriers to stockpiling.

     Shifting from being in the EU to dealing with it on World Trade

Organisation rules would highlight the constraints in the current system.

     "Our assessment, which is consistent with parliamentary testimony ... from

the Department for Transport, HMRC (customs), the ports themselves, the users of

the ports or some of our major manufacturers, is that at this point in time the

ports are not ready for a move to an administered WTO relationship," Bank of

England Governor Mark Carney told the Treasury Committee in Dec. 4 evidence.

     The BOE's Brexit scenario analysis drilled down into details of the usage

of specialised roll-on roll-off ferry transport, developed to maximize port

efficiency in a world without customs checks. With ports struggling there is

anecdotal evidence that business is already being re-routed for clearing through

Rotterdam.

     --FINANCIAL CONSTRAINTS

     In addition, Chadha pointed out, businesses face financial constraints. A

small-to-medium-sized business looking to, say, double its stocks ahead of the

end-March Brexit deadline would face the cost of holding them for three months

and beyond.

     The BOE agents network has found many businesses have yet to act to deal

with Brexit risks, with the delay reflected in weak business investment data.

     The BOE Agents Report for Q3 said some firms reported "they were reluctant

to expand capacity until there was more clarity on future market access to the

EU. (Others) ... are developing contingency plans - such as increasing stocks of

components imported from the EU ... although only a small minority of firms has

started to implement them."

     National Statistics officials have said that they have not seen clear

evidence of stockpiling in recent data releases.

     The November Monetary Policy Committee minutes showed that while the MPC

thought stockpiling could accelerate, it was still unlikely to provide much of a

boost to economic output near term.

     "If concerns about a disorderly Brexit were to persist, it was possible

that such stockbuilding could occur in 2018 Q4 and 2019 Q1. Nevertheless, there

were reasons to expect any effects on aggregate activity to be limited," the

minutes said.

     The MPC said a lot of the stockpiling would be of imported goods, which

would be neutral for GDP, and that the constraints on warehouse capacity and

haulage "would limit the feasibility of substantial inventory accumulation."

     The December MPC Minutes and Agents Report, out Thursday, will provide an

update on BOE evidence on stockpiling. While Brexit uncertainty is very high,

the minutes are again likely to show just how muted the business response to it

has been.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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