In Q2, 57% of UK firms interviewed by the Bank of England between 23 April and 28 May reported that Brexit was part of their top three current sources of uncertainty, a record high number. About 40% of them reported uncertainty about supply chains and customs arrangements. More firms adjusted their expectations for Brexit to be resolved later (in 2020 instead of 2019). Moreover, 75% of companies are maintaining or increasing contingency planning (i.e. increasing resources to handle Brexit, stockpiling, building cash reserves, looking for alternative suppliers). Increases in inventories due to Brexit were concentrated in manufacturing (more than half in raw materials) while wholesale and retailers were most likely to have built up stocks of finished goods (around 40% reported this). We expect an extension of Article 50 from 31 October to mid or end-2020 (50% probability) while increased uncertainty will push companies to re-stock in Q3. A downside adjustment will then occur in Q4 2019 (we forecast a -0.2% q/q decline of GDP) and could be prolonged into Q1 2020.
