UK factories brace for Brexit, but consumers less worried

[March 01, 2019]   By William Schomberg and Andy Bruce

LONDON (Reuters) - British factories are cutting jobs and bracing for Brexit by stockpiling goods at a record pace, but consumers seem less worried, suggesting their spending might help to shore up the economy, data showed on Friday.

Workers talk inside the factory of precision engineering company Produmax in Shipley, Britain May 8, 2018. Picture taken May 8, 2018. REUTERS/Phil Noble

A measure of manufacturing - the IHS Markit/CIPS Purchasing Managers' Index - hit a four-month low in February, and the fall would have been worse if factories had not rushed to build up inventories to see them through any Brexit border chaos.

A measure of stockpiling hit a record high for any Group of Seven economy while factories cut jobs at the fastest pace in six years and were increasingly downbeat about the future.

But separate data showed households took out more mortgages and increased borrowing in January by more than any forecast for both indicators in a Reuters poll of economists.

James Smith, an economist with ING, said consumers were likely to focus on Brexit closer to the event.

"People are still nervous, and that could increase over the next few weeks as we get closer to the crunch," he said.

The world's fifth-biggest economy has slowed ahead of Brexit, which is scheduled for March 29, although Prime Minister Theresa May has paved the way for a possible delay.

A weakening of the world economy has also weighed on Britain, and an equivalent euro zone manufacturing index fell into contractionary territory on Friday.

For consumers, at least for now, the worries about Brexit appear to have been offset by a fall in inflation and a gradual acceleration of growth in their pay, which has restored some of their spending power.

Even so, the pace of annual growth in consumer borrowing was the weakest in over four years.

For companies, the prospect of a delay to Brexit, possibly until June, might have eased the immediate fears of a chaotic exit from the EU, but it also threatens to extend the uncertainty.

Business investment in Britain fell in all four quarters of 2018, a run not seen since the depths of the financial crisis a decade ago.

"This additional delay means businesses will not have the certainty they need to resume spending for a while longer," Allan Monks, an economist with JP Morgan said.

"This in turn suggests growth will take longer to recover from the current soft patch, and highlights the risk that the Bank of England will tighten later than our August forecast."

The BoE has said it plans to resume raising interest rates gradually, if Britain can avoid the shock of a no-deal Brexit.

Manufacturing represents about 10 percent of total British economic output. PMI data for the construction and dominant services sector are due on Monday and Tuesday.

(Additional reporting by David Milliken, editing by Larry King)

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