UK food and drink manufacturing fell for the first time in nearly a year in May as price increases linked to input costs ate away at consumer demand.
Lloyds Bank’s UK Sector Tracker Index, based on purchasing managers’ data compiled by S&P Global, fell below the 50-division line between expansion and contraction last month as “the Inflated input costs have pushed producers to raise prices at a record pace.”
The index fell to 47.5, the first time it broke the 50 barrier since July last year, which Lloyds called “weaker”. [consumer] disruptions in demand and supply”.
Annabel Finlay, the bank’s head of food, beverage and leisure, said inflation was “apparently starting to weigh on customer demand”.
The UK government announced today (22 June) that annualized inflation rose slightly to 9.1% in May from 9% in April, remaining at its highest level in 40 years. Food and non-alcoholic beverages led the charge, up 8.7%, the biggest increase since March 2009.
Finlay added: “Companies continue to struggle with fierce input cost inflation and in response many raised prices again in May.
“How this trend evolves will depend on the intensity of input price pressures going forward and the ability of businesses to absorb or pass on higher costs amid weaker consumption.”
Food and drink 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 shortages, and more recently the war in Ukraine, continued to impact supply, Lloyds said, as “companies also reported shortages supply of key ingredients and transportation delays”.
The PMI for new orders fell to 49.2 from 53.3 in April.
“The costs of energy, fuel, raw materials and wages were the main sources of inflationary pressures for businesses, with food and beverage manufacturers being particularly affected by the escalating prices of agricultural raw materials – in particularly wheat, oils and fertilizers – resulting from the war in Ukraine,” Lloyds said. .
See Just Food’s analysis here: The price predicament – food brands in an inflationary climate
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