Brexit threat takes its toll

London, UK: Brexit on 31 October, deal or no-deal, is already taking its toll on UK business.

Warehouse operators report almost no spare capacity reducing the potential to stockpile goods ahead of ahead of a potential no-deal Brexit on 31 October.

“There is no available space,” Peter Ward, (pictured above) chief executive, United Kingdom Warehousing Association, told BBC Newsnight. The estimated vacancy rate for warehouses of over 100,000 square feet nationwide for the second quarter is 6.8%, according to figures reported by Newsnight. In the “inner M25” area the vacancy rate has fallen to 2.2%. “The market, as represented by our members, is full,” Ward said.

“You can’t just turn on supply; and the vacancy rates talked about by the industrial agents are largely de-coupled from the Brexit related surge in demand.  For the most part the demand is for the kind of fully serviced logistics solutions that UKWA members provide – in other words warehousing with racking, materials handling equipment, labour and connectable warehouse management systems with ‘pay as you play’ transactional pricing. This is very different from empty buildings with landlords seeking long-term lease commitments. In any event, adding new real estate to the system can take a number of years, and I can’t see any increase in capacity by October. ”

Richard Sullivan and Kevin Mofid of Savills, who compiled the warehouse data, said there were long-term demand pressures on UK warehousing. This is in part due to the rise of e-commerce, which requires more warehousing than traditional retailing and also because new available land in recent years has been used for residential development.

They said that before March there was no spike in firms taking any extra warehouse space, despite widespread stockpiling activity, because firms had used their buffer space on their existing estates. But it would be much harder for companies to tap spare capacity this time around because many warehouses will be filling up anyway ahead of Christmas retailing, they said.

“The biggest concern at the moment is that the October deadline comes right bang in the middle of peak season. From a timing point of view it couldn’t be worse,” Ward said. Big retailers echo this concern. Dave Lewis, chief executive, Tesco, told the BBC that the new deadline of the end of October meant there would be “less capacity” for stockpiling longer-life items.

A no-deal Brexit could mean tariffs and delays at the border that interrupt supplies of some food, he said. Lewis said Tesco had bought extra stock of long-life items in preparation for 29 March when the UK was initially expected to leave the EU but said it would be harder to make similar preparations this time round. “We’ll do whatever is practical depending on how things develop between now and then.

“But the challenge will always be those things which are shorter life, fresh produce. That’s what the UK imports quite a lot of,” he said. The UK currently imports about half of food consumed.

Mike Coupe, chief executive, Sainsbury’s said: “Our warehouses start to get pretty crammed during the course of October as we are stockpiling to be able to cope with the Chrtismas season.”

He said potential delays at ports and the imposition of tariffs could mean difficulties for all kinds of imported products as well as fresh food, which retailers and farmer have long flagged as especially sensitive to disruption.

Coupe said he had repeatedly made clear to government officials that a “hard-edged Brexit would be very disruptive to our business and people’s Christmas this year”.

The UK economy has stalled since the spring as the prospect of no deal has grown. Last month construction industry output dropped to its worst performance in more than 10 years, and the manufacturing industry recorded the sharpest drop in factory output for more than six years. The Bank of England governor, Mark Carney, said a broad range of economic indicators “point to no growth in UK output” and the situation would worsen if the eventual outcome was no deal. Speaking in Bournemouth to the Local Government Association annual conference, Carney said global markets had become deeply worried by the impact of Brexit.

The British economy contracted by about 0.1% in the three months to June, according to IHS Markit and the Chartered Institute of Procurement and Supply (Cips), which compiles the monthly survey.

Failure to rebound in the third quarter would mean the country sliding into a recession before Britain is scheduled to leave the EU by 31 October. The last time GDP shrank for one quarter was in the final three months of 2012.

The latest snapshot revealed subdued activity in the sector forming the backbone of the British economy, which includes finance, transport and telecommunications, in a survey of 650 services firms that is closely monitored by the Treasury and the Bank of England. The service sector accounts for about four-fifths of the UK economy.

Expectations among City investors have increasingly shifted towards an interest rate cut from the Bank as the growth picture deteriorates. The reading from the PMI sent financial market expectations of an interest rate cut this year to more than 50%.

Official growth figures for the second quarter will be released next month. However, the respected National Institute of Economic and Social Research (NIESR) thinktank has forecast that GDP contracted by 0.2% in the second quarter.

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