Stock And Supply Chain Issues In The UK

5th April 2022

Quarter 1 (Jan to Mar) 2018 to Quarter 4 (Oct to Dec) 2021.

Stock has been affected over the last few years by global supply chain issues, material shortages, the EU exit and the coronavirus (COVID-19) pandemic.

The construction industry has seen their stock levels change as much as 5% quarter-on-quarter and the motor trades industry stock level is currently 10% below the pre-pandemic Quarter 4 2019.

Comments from the Quarterly Stocks Survey (QSS) have told us that the EU exit, pandemic, semiconductor shortage and other issues are the reason behind these changes in stock levels and supply chain issues.

Over recent years, the EU exit, coronavirus (COVID-19) pandemic, higher energy and commodity prices, and events such as the blockage of the Suez Canal have presented businesses with significant challenges when acquiring and maintaining their stock. As a result of these challenges, the UK has experienced increased business uncertainty, supply chain issues across a variety of materials and products arising from worldwide shortages, and rising inflation.

Changes in inventories (the change in the level of a business's stock) for businesses has fluctuated since the start of Quarter 1 (Jan to Mar) 2018, as seen in Figure 1 below. These data are sourced from Office for National Statistics' (ONS') Quarterly Stocks Survey.

The period from Quarter 1 to Quarter 3 (July to Sept) 2020 shows the effect that the pandemic and the associated public health restrictions had on change in inventories for UK businesses.
Quarter 2 (Apr to June) and Quarter 3 2020 saw large quarterly decreases in change in inventories, with the retail industry, construction and motor trades industries driving this fall in Quarter 2 and manufacturing, construction and motor trades industries in Quarter 3.

Retail industry
The retail industry has been hit particularly hard since the beginning of 2020. At the end of Quarter 1 (Jan to Mar) 2020, public health restrictions were introduced because of the coronavirus (COVID-19) pandemic which closed non-essential shops and stores and encouraged people to only visit essential shops where necessary. At this early stage of the pandemic, uncertainty led some customers to stockpile certain products, leading to empty shelves of certain essential goods for some retailers. In addition to public health restrictions that were implemented, retailers had to adapt to the UK's exit from the EU on 31 January 2020. With both of these events affecting the way businesses operated, many were unsure of their supply and demand and as a result experienced changes in the level of their stock. In the worst periods during the pandemic many retail shops were shut altogether as the first UK wide lockdown took place. Approximately a quarter (27%) of all wholesale and retail trade businesses paused trading from the 23 March to 9 April 2020 according to the Business Impact of Coronavirus (COVID-19) Survey (BICS). Many of those continuing to trade moved to online sales only.

Quarter 2 (Apr to June) 2020 was another quarter where retail businesses struggled as restrictions were placed on the public and businesses in the UK. Supermarkets particularly felt the strain as many were unable to keep up with consumer habits that had arisen and products such as flour and toilet paper specifically were in high demand. Retailers struggled into Quarter 3 (July to Sept) 2020, although restrictions were lifted for some months of this quarter there were other issues such as supply chain issues.

Supply chains were also affected from the second half of 2020 because of HGV driver shortages and delays receiving goods from ports as retail businesses faced uncertainty. Pressures on supply continued through 2020 and into 2021, with little reprieve to supply chain issues and levels of uncertainty. Quarter 3 would usually be a strong quarter for retailers as they begin to increase stock for the busy winter and Christmas period coming in Quarter 4 (Oct to Dec). However, this was not the case in 2021 as stock in the retail industry only grew by £380 million for Quarter 3 2021.

When looking deeper into the retail industry, it shows that there are a few specific areas of retail that saw the majority of the weakness in the level of stock for the latest quarter. These industries were "Other retail sale in non-specialised stores" and "Retail sale of sporting equipment in specialised stores". Figure 3 shows the slow decline in the levels of stock in other retail sale in non-specialised stores since the start of the COVID-19 pandemic. As well as the considerable decline since Quarter 3 2020, there has been a slow decline in the level of stock in "Other retail sale in non-specialised stores" since Quarter 3 2017. Changing consumer shopping habits has contributed towards this decline, with the increasing use of online shopping replacing traditional purchases at high street stores. The COVID-19 pandemic has also contributed towards this decline as non-specialised store were deemed to be "non-essential retail".

Construction industry
Inventories of construction industries are at their lowest point since Quarter 4 (Oct to Dec) 2019. The construction industry has seen fluctuations in stock levels since then as a result of increasing difficulty in getting products. Global supply chain issues have meant that materials such as bricks, wood and glass have been difficult to acquire. There was also a price impact because of the short supply as the price of bricks and wood rose. Not only have businesses been unable to acquire materials but there has also been a backlog of construction work (as the majority of construction work halted during the start of the coronavirus (COVID-19) pandemic), so any stock that businesses can acquire is quickly being used. To add further strain on construction materials, many homeowners embarked on DIY projects during the periods of lockdown as they reassessed their homes and gardens with more time on their hands to make changes.

Motor trade industry
When assessing the levels of stock over recent periods, one of the industries hardest hit by supply chain issues has been the motor trade industry. An international shortage of semiconductors, caused by coronavirus (COVID-19), has been the main driving force. Semiconductors mainly produced in China and the US are a key component in the production of new cars and there has been a fall in the stock of new cars in the UK as businesses have struggled to acquire them because of production delays. Figure 5 shows the level of new and used motor vehicles held by businesses. The overall level of new cars is more erratic because of peaks around new number plates as demand increases. While the level of used cars remains relatively steady, the start of the fall in the stock of new motor vehicles begins in Quarter 2 (Apr to June) 2020 when lockdown restrictions came into full force, coinciding with the stock level increase in used cars as a result of price and quantity increases. Comparing the levels of new cars from the most recent Quarter 4 (Oct to Dec) 2021 with pre-pandemic Quarter 4 2019, we have seen a fall of 40%.

Read the full report at -
https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/stockandsupplychainissuesintheuk/quarter1jantomar2018toquarter4octtodec2021