Food and drink manufacturers’ output grew at the fastest rate of any sector last month, despite producers still facing high costs, according to new data.
The UK food and drink manufacturing sector scored 59.2 on Lloyds Bank’s UK Sector Tracker in July, compared with 56.9 the previous month, partially due to growing demand.
In the Lloyds’ sector tracker, any figure above 50 represents expansion, while below 50 indicates contraction.
Food and drink recorded the fastest growth rate of any of the 14 sectors monitored.
However, sustained cost pressures led to food and drink producers increasing their prices at the fastest rate of any other industry last month, the research also showed.
Faced with continued inflationary pressures (67.3 in July versus 69.1 in June) such as higher shipping and labour costs, food and drink manufacturers raised the prices charged to customers – including retailers and wholesalers – at the fastest rate of any sector and more than the prior month (56.5 in July versus 50.4 in June).
But the food industry is not the only dealing with cost hikes – the Lloyds tracker’s measure of cost inflation across the overall UK manufacturing sector hit its highest level since January 2023.
All 14 monitored sectors saw costs rise in July, which was also the second month in a row where all increased prices.
Despite these pressures, the price hikes have not yet been reflected at the supermarket tills – in fact, UK grocery inflation slowed in July to 1.6%, its lowest level since September 2021, according to Kantar.
Dave Atkinson, UK head of manufacturing at Lloyds Bank, said: “The food and drink manufacturing sector has recently faced sharp and sustained cost pressures. Although the data currently indicates that many firms are able to absorb this, they may be considering how sustainable it is in the long term.
“Balancing pricing strategy while having a competitive edge will be the aim of many businesses as they closely manage working capital to ensure that they can maintain financial resilience.”
The findings come days after FDF research showed that British food and drink manufacturers were finally “bouncing back” from years of contraction and divestment.
The FDF’s Q2 State of Industry Report, which tracks business confidence and trends in the sector, showed that nearly nine out of 10 food and drink manufacturers expected to maintain or increase investment levels over the coming year.
This was a signal that the sector was “turning a corner” after the policy turmoil and external supply chain shocks that have severely impacted businesses and led to a 30% drop in investment since 2019.
With technology and innovation playing a critical role in the future of manufacturing, over one third of manufacturers also said they planned to increase their R&D spend over the coming year.
Balwinder Dhoot, FDF director for sustainability and growth, said: “Despite investment in our sector being down by a third compared to 2019, it’s encouraging that manufacturers are planning to increase or sustain their investment this year.
“A well-crafted industrial strategy – working in partnership with the UK’s largest manufacturing sector – will also allow us to seize investment opportunities and tackle some of the nation’s critical challenges around food security, health, productivity and net zero.”
Dhoot added it was “crucial” for government to “establish a stable business environment that removes the burden of unnecessary and costly regulation and bureaucracy” – including post-Brexit border requirements such as health certificates, which led to a slump in UK-EU trade in recent years.
Half of the industry believed improving relationships with the EU should be a top priority, the FDF noted.
“Providing targeted support for smaller businesses – who make up 97% of our sector and who are disproportionately impacted by these costs and pressures – must be a priority,” Dhoot said. “This approach will help make the UK the best place to invest and innovate in food and drink production.”
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