How is stockbuilding affecting UK growth?

Published on 22 May 2019

Survey evidence suggests that businesses built stocks as part of their Brexit contingency planning. Stockbuilding is likely to have accounted for some of the unexpected strength in output growth in Q1, but this boost to growth is expected to be temporary.

In February, the MPC noted that shifting expectations about Brexit could mean that data in early 2019 would be volatile and might not provide a clear signal about underlying output growth. One factor that could cause such volatility is stockbuilding.

Stockbuilding occurs when a business puts finished goods or raw materials to one side to hold in reserve, or when the volume of work in progress increases. A range of survey evidence suggests that uncertainty about Brexit caused companies to increase their holdings of stocks in Q1 (Chart A).

Chart A

Surveys suggest that firms have been stockbuilding ahead of Brexit

IHS Markit/CIPS manufacturing survey(a)(b)

Sources: IHS Markit and Bank calculations.

(a) Net percentage of manufacturing companies reporting that stocks increased this month compared with the previous month.
(b) Data are shown up until March 2019.

The MPC had flagged in February that stockbuilding was likely to increase in Q1, but the latest data suggest that there has been more stockbuilding than had been expected at that time. That may account for some of the recent strength in UK output growth relative to expectations in February.

UK imports and exports of goods from and to the EU rose markedly in Q1 (Chart B) with historically strong growth, probably reflecting stockpiling by both UK and EU firms. Stockbuilding by UK firms appears to have boosted domestic manufacturing output, as well as perhaps some components of services output such as warehousing.

Chart B

The recent strength in EU goods imports and exports may reflect stockbuilding

Contribution to three-month on three-month growth in goods imports and exports by area of origin(a)

(a) Chained-volume measures. Goods exports and imports are measured excluding trade in unspecified goods.

The boost to growth from Brexit-related stockbuilding is likely to be temporary. Stockbuilding only increases growth if the rise in stock levels is larger than in the previous period. If companies stockbuild at a slower pace in Q2, maintain their stock levels or de-stock, it will drag on growth.

In the May Inflation Report projection, the MPC judged that stockbuilding had boosted GDP growth in Q1, but that it would drag on growth by a similar amount in Q2.

This post has been prepared with the help of Michael Goldby.

This analysis was presented to the MPC as part of its May 2019 round.

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