Ahead of Brexit, stockpiling by businesses could cause a mini-recession for the UK
Think tank the Center for Economic and Business Research thinks businesses will stockpile £38 billion worth of goods in the run-up to Brexit but then immediately run-down their supplies post-March 2019, causing a “mini-recession.”
The Centre for Economics and Business Research (CEBR) estimated in a briefing note on Monday that UK businesses will stockpile goods worth £38 billion ahead of the March 2019 Brexit deadline.
Stockpiling is expected as businesses look to guard against the possibility of a no deal Brexit, which would see the UK crash out of the EU without a deal on future trade agreements.
CEBR estimates that this stockpiling in the three quarters to March 2019 will boost UK GDP by 0.5%. But GDP growth should slump by the same amount in the immediate aftermath of Brexit as businesses look to run-down the inventories they have built up.
Douglas McWilliams, the founder of the CEBR, said in the note: “This makes a post-Brexit mini-recession almost inevitable.”
The prospect of a no deal Brexit has come into increasing focus over the last few months as the government has admitted it is a growing possibility and set out plans to deal with it.
Britain’s International Trade Secretary Liam Fox said in an interview last month that the chance of a no deal Brexit had risen to 60%. The government subsequently published a set of papers outlining how a no deal Brexit would affect various sectors.
“The government papers on the impact of a ‘No deal Brexit’ have highlighted the potential disruption – difficulties in obtaining medicines, sandwich ingredients and various other products,” McWilliams wrote.
“But the single largest cause of disruption will undoubtedly be raw materials and semi-manufactures. Of the £260 billion of goods imported from the EU last year about £100 billion fall into these two categories.”
McWilliams added that the CEBR’s estimates on stockpiling are based on “anecdotal evidence, surveys and intuition,” as “it is hard to find an equivalent episode to Brexit that can be used to check on past experience.”