UK food and drink manufacturing declined for the first time in almost a year in May as input-cost-linked price increases ate into consumer demand.
Lloyds Bank’s UK Sector Tracker index, based on purchasing managers’ data collated by S&P Global, fell below the 50 divisional line between expansion and contraction last month, as “input-cost inflation drove producers to raise prices at a record pace”.
The index dropped to 47.5, the first time it has broken through the 50 barrier since July last year, which Lloyds put down to “weaker [consumer] demand and supply disruptions”.
Annabel Finlay, the bank’s head of food, drink and leisure, said inflation is “seemingly starting to weigh on customer demand”.
The UK government reported today (22 June) that annualised inflation edged up to 9.1% in May, from April’s 9% pace, remaining at a 40-year high. Food and non-alcoholic drinks led the charge, up 8.7%, the largest increase since March 2009.
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Finlay added: “Businesses continue to battle fierce input-cost inflation, and in response, many have again raised prices in May.
“How this trend develops will depend on the intensity of input-price pressures going forward, and business’ ability to absorb or pass on higher costs against the backdrop of a weakening consumer.”
Food and drinks makers also saw a contraction in new orders, Lloyds said, “with businesses attributing the slowdown to more cautious consumer spending and fewer customers stockpiling goods”.
Supply-chain disruptions linked to pandemic-related shortfalls, and more recently the war in Ukraine, continued to have an impact on sourcing, Lloyds said, as “companies also reported ongoing shortages of key ingredients and transport delays”.
The purchasing managers’ index for new orders dropped to 49.2, from 53.3 in April.
“Energy, fuel, raw material and salary costs were firms’ primary sources of inflationary pressures, with food and drink manufacturers particularly affected by escalating agricultural commodity prices – especially in wheat, oils and fertilisers – resulting from the war in Ukraine,” Lloyds said.
See Just Food’s analysis here: The pricing predicament – food brands in an inflationary climate