Businesses ramp up stockpiling as supply chain crisis continues

Official data suggest businesses increased stores even ahead of news of the new omicron variant

Anna Isaac
Thursday 02 December 2021 17:49
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<p>UK firms are building up their inventories of materials and goods at the greatest rate since February.</p>

UK firms are building up their inventories of materials and goods at the greatest rate since February.

British businesses have been stockpiling goods and materials at the highest rate since February, according to official figures.

More than one in 20 firms are now building up their stores, according to survey responses gathered from 15-28 November by the Office for National Statistics (ONS). This rate of 6 per cent was the highest recorded since stockpiling data was first gathered in February 2021.

The increase comes amid a global supply chain crisis which has been heightened by increased red tape for companies who source products and inputs from the EU and an acute shortage of lorry drivers.

The data does not fully reflect firms’ responses to news of the Covid-19 omicron variant. Some survey responses were gathered before the variant was reported, and all were collated before the government introduced a range of travel restrictions on countries and mask-wearing mandates for transport and retail.

“There’s very little sign in the UK as yet that either supplies of goods or labour have started to ease,” Paul Dales, chief UK economist at Capital Economics told The Independent.

“It’s sensible for companies to build up stocks where they can,” he added.

However, with reports of widespread labour shortages and uncertain rates of consumer demand, companies have faced situations where they have been unable to shift the stock they already have. There has also been huge pressure on commercial property, including warehouses, in order to gain the space necessary to stockpile in the first place.

These factors may have dampened down the data on stockpiling so far this year, rather than a shift in businesses’ desire to be well prepared for unrelenting supply chain disruptions.

“They [companies] may have managed to get the products they want, but not necessarily the labour to distribute them,” said Mr Dales.

The signs of growing stockpiles may, in part, be a response to growing inflation pressures. Materials and other running costs for manufacturing and services have risen at the fastest rate since records began, according to the latest Purchasing Managers’ Index, published on Wednesday by IHS Markit.

Businesses’ costs continued to “surge relentlessly higher” in November, said Rob Dobson, director at IHS Markit on Wednesday. And prices were “rising at the steepest pace in the three decades of survey history” for the manufacturing sector.

“Stretched supply chains, component shortages and a vast mismatch between demand and supply are all exerting massive upwards pressure on input costs. This is also filtering through to prices charged at the factory gate, which rose at a rate close to October’s record high,” he added.

The Bank of England’s own forecast suggests that inflation may hit a peak of 5 per cent in April 2022, more than twice its 2 per cent inflation target.

Still, the omicron variant may cause policy makers at the Bank of England to hit pause, rather than increase interest rates at their next meeting in just over two weeks’ time. The uncertainty over the pandemic’s path may outweigh the intense pressure on the central bank to act in the face of rising inflation and encourage policy makers to hold off until the new year.

“The variant offers an almighty incentive for the Bank not to raise rates now,” said Mr Dales.

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