The sector’s output index registered 47.5 in May – signalling its first fall since July 2021. A reading above 50 indicates expansion, while below 50 signals contraction.
May’s fall in production was driven by weaker demand and supply disruptions, the tracker said.
In April, the tracker revealed that soaring commodity prices and deteriorating supply conditions created by the war in Ukraine caused the output growth of UK food and drink manufacturers to fall to an eight-month low in March.
Fall in new orders
In May food and drink manufacturers saw a fall in new orders (49.2 in May vs 53.3 in April), with businesses attributing the slowdown to more cautious consumer spending and fewer customers stockpiling goods.
Firms also noted ongoing shortages of key ingredients and transport delays. Nearly a third (29%) of food and drink manufacturers reported worsening supply chain issues with the sector experiencing the most widespread delays in three months according to on the Tracker’s Suppliers’ Delivery Times Index (35.8 vs. 36.1 in April).
The report said that alongside weaker demand and supply disruption, food and drink manufacturers continued to grapple with persistent input cost inflation.
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.
In May, output price inflation in the food and drink manufacturing sector was the fastest of all 14 sectors monitored, posting its highest reading on the Output Prices Index in its 22-year history (81.9).
Annabel Finlay, Managing Director and Head of Food, Drink & Leisure, Lloyds Bank Commercial Banking, said: “This month’s contraction in output ends a nine-month streak of continuous expansion for the sector, with inflation seemingly starting to weigh on customer demand.
“Businesses continue to battle fierce input cost inflation and in response many have again raised prices in May – an understandable measure to mitigate downside financial risks.
“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.”