UK Prime Minister Theresa May’s historic defeat in passing the Brexit deal has prompted businesses in UK to prepare for a no-deal Brexit. British manufacturers in order to ramp up stockpiling of goods and materials are building their financial buffers. The manufacturers are taking out working capital loans and also creating cash cushions for covering the cost of stockpiling.
British manufacturers have spent millions of dollars on stockpiling efforts as it expects possible delays at the border in case of a no-deal Brexit scenario. The money which would otherwise be used for covering operational cost is being diverted to stockpile additional raw materials and goods. UK based manufacturers which have already started stockpiling ahead of 29 March 2019 Brexit which include Aerospace Company Airbus and bicycle manufacturer Brompton Cycle.
Santander, one of the leading banks in the UK with major businesses as its clients said that manufacturers are holding on their cash reserves and delaying capital expenditure. While a high ranking personnel at another high street bank said that they are actively working along with major manufacturers for working capital loans.
Head of manufacturing at Santander UK, Paul Brooks said that their manufacturing clients are delaying investment plans and choosing to build their cash reserves. He added that they are working in close cooperation with clients to help them in exploring export opportunities and managing cashflow. UK’s central bank, Bank of England in its fourth quarter report stated that there was a 7% increase in borrowing demand from manufacturers which rose to £18 billion up to November 2018. This is in contrast to falling demand for loans from other sectors. There is particularly acute demand for loans from smaller companies who usually deal with a single bank for lending facilities.
The largest companies in the UK have repeatedly warned that a no-deal Brexit would hamper business and manufacturing operations by the delay in passing goods at the border. UK’s manufacturing lobby group EEF surveyed that 60% of the companies are building cash reserves and ramping up stockpiling of materials in case supply of essential raw material dries up.
At this ‘point of maximum uncertainty’ as quoted by one banker, businesses are taking extreme caution. But the banking industry seems confident in providing lending facilities to its clients. Bank of England said in November last year that its stress tests showed that even in case of worst decline in economy after the 2008 financial crisis, UK’s banks will be able to offer lending to its clients.