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June 22, 2022

UK food, drink output contracts as inflation weighs on consumers – Lloyds

Lloyds Bank said “input-cost inflation drove producers to raise prices at a record pace”.

By Simon Harvey

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.

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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.

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

Wheat leads global cereal prices higher as Ukraine crisis festers – FAO

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How is technology having an impact on Consumer buying behavior?

As the world rapidly becomes more connected, it is important for brands to understand the impact that improved technology is having on consumer purchasing behaviors. To react effectively, brands must know how to engage with increasingly digitally savvy consumers. GlobalData’s latest Trend Tracker report provides an analysis of Digital Lifestyles – one of GlobalData's top consumer trends for 2022. The report includes an overview of how digital lifestyles are evolving, including the significant impact that the COVID-19 pandemic had on accelerating digitalization, and how this trend is emerging across different Consumer sectors. Key features included in the report:
  • A breakdown of the trend’s prominence across sectors
  • Insights into consumer online penetration, preferred electronic devices and engagement
  • The key drivers and challenges impacting the digital lifestyles trend
  • A spotlight on key innovations set to reshape the consumer landscape
  • Analysis of what’s next for digital innovations and how brands can leverage the trend
Download this report to keep in touch with the more digital consumer.
by GlobalData
Enter your details here to receive your free Report.

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