Realist, not conformist analysis of the latest financial, business and political news

How Excellent, Manufacturers Are Stockpiling In Fear Of A No Deal Brexit

We’re told this news so that we may shiver in fear at the prospect of letting go of Nanny Europa – manufacturers are stockpiling goods in fear of a no deal Brexit and reversion to WTO terms. The truth is that this is good news on two counts, one at the system level and the second as more of a detail about current circumstances. That system point is, hey, great, aren’t we lucky to be using an economic system which has such self-correcting mechanisms built in? The second being that great, we’re gaining a little bolus of stimulus to the economy, ain’t that grand?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Manufacturing activity is growing at its fastest rate in six months as factories stockpile in preparation for a no-deal Brexit, according to the latest purchasing managers’ index. Economists were pessimistic about the findings, warning that any positive impact is likely to be short-lived because producers will run down their stocks once the risks have passed before making new orders. The PMI survey is considered one of the best indicators of the strength of a sector. It showed a reading of 54.2 in December, up from 53.1 in November and the highest level in six months. [/perfectpullquote]

The PMI is a good measure of the future of the economy. If people are going to make things then they’ve got to go out and buy the things they make things from. So, to have a guess at what the next few months might be like, go ask the people who do the buying of stuff to make stuff from – well, are you buying? More? As a short term guide to the next couple of months this is actually a very accurate economic statistic.

However, this specific version of it doesn’t mean all that much. Manufacturing is some 10% of the UK economy, we’re talking about slight differences in expansion or contraction of only 10% of the UK economy. It’s the other one, the services one, which is a better guide to overall economic health.

To the grander point, this is being reported as if Brexit is leading to some sort of disaster. And yet look at what is happening. No government directive has gone out, no central planners have decreed, and yet private businesses, acting under their own impulses and incentives, are carrying out exactly the activity which will aid in protecting us in the event of a no deal Brexit. Ain’t that great? That we use the only economic system which has these inbuilt regulators, that mix of capitalism and markets?

In more detail, there’s that whine that sure, this is greater activity now. But it’ll all unravel afterwards, as stocks are run down again. Sure – but then that’s the way Keyenesian economics works isn’t it? By bringing economic activity forward to now with a little bolus of stimulus we move the whole edifice to a permanently higher level of production don’t we?

So, Brexit is acting as Keynesian stimulus then. Which is just super of course. Brexit, the gift that never stops giving.

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Matt Ryan
Matt Ryan
5 years ago

Brexit on WTO terms will make the Y2K problem look like it was difficult.

5 years ago

In their own words, “once the risks have passed…”

Implying that life will be back to normal PDQ.

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