Stockpiling activity likely to have boosted U.K. economy in Q1, growth may decelerate in Q2

The U.K. economy has been unexpectedly resilient in spite of uncertainty around Brexit, at least when the data are taken at face value. The economic growth recovered in January with a 0.5 percent sequential rise in the midst of solid manufacturing output, while retail sales exceeded expectations in the initial two month of 2019.

The U.K. manufacturing PMI in March rose to the highest in almost a year, at 55.1. While this strength is helpful, especially as it relates to consumer demand, it seems that at least some of the recent strength has been due to inventory building as manufacturers prepare for a possible no-deal Brexit.

On a year-on-year basis, the trend in industrial production is hardly encouraging. While stockpiling activity might stimulate the first quarter real GDP growth in the nation, there might be some payback in the second and third quarters, said Wells Fargo in a research report.

“Were a no-deal Brexit to occur, a drag on growth from inventories would likely be the last thing the U.K. economy needs”, added Wells Fargo.

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