Food and drink manufacturers’ output increased at the fastest rate of any monitored sector in July on the back of growing demand, according to the latest Lloyds Bank UK Sector Tracker.
In July, food and drink manufacturing registered 59.2 on the Tracker’s measure of output growth (vs. 56.9 in June) – the fastest growth rate of any of the 14 sectors monitored. This was supported by demand growth that was the strongest of any manufacturing sector (55.4 in July vs. 60.3 in June). A reading on the Tracker above 50.0 indicates expansion, while a reading below 50.0 indicates contraction.
Overall, in July, nine of the 14 UK sectors monitored by the Tracker saw output expand, one more than in June.* More sectors also saw demand increase (nine vs. eight in June).
Food and drink sector managing rising costs
Facing continued cost pressures (67.3 in July vs. 69.1 in June), food and drink manufacturers raised their prices charged to customers – which include retailers and wholesalers – at the fastest rate of any sector and more than the month before (56.5 in July compared to 50.4 in June).
This came amid widespread inflationary pressures within the manufacturing sector, influenced by higher shipping and staff costs, that could lead to higher goods price inflation across the economy.
For only the second time since 2022, all seven manufacturing sectors monitored by the Tracker recorded cost rises in July. Meanwhile, the Tracker’s measure of cost inflation across manufacturing reached its highest level since January 2023
As a result, the Tracker’s measure of manufacturers’ price inflation also rose to the highest level since May 2023 with five manufacturing sectors, including food and drink, increasing prices at a faster rate than in June.
In the services sector, cost inflation remained high and rose at a marginally faster rate in July compared to June. This came amid firms more frequently mentioning the impact of higher shipping costs (6.53 times the long-run average). References to higher salary costs (1.59 times the long-run average), meanwhile, fell to their lowest since February 2024.
Despite elevated cost pressures, services price inflation moderated in July. Four of the seven services sub-sectors increased selling prices more modestly than in June, while the number of businesses that raised prices due to strong demand fell to a 40-month low (1.27 times the long-run average).
Overall, July marked the first month since April 2024 where all 14 monitored sectors saw costs rise, and the second month in a row where all increased prices.
Jeavon Lolay, Head of Market Insights at Lloyds Bank, said: “Our latest report confirms the strength of demand in the UK, with most sectors in growth mode at the start of the third quarter. While food and drink manufacturers led the way in July, the manufacturing sector as a whole continued to perform well.
“Rising price pressures are another key feature in this latest Tracker, with all seven manufacturing sub-sectors reporting they are increasingly charging higher prices– only the second time this has happened since 2022. This highlights that while attention has shifted to more domestically generated services inflation, developments in the goods-producing sector cannot be ignored when considering the future path of UK inflation.”
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.”
