UK food manufacturing output to grow in 2023

The Lloyds Bank UK Sector Tracker found that all 14 sectors it monitored expected their output to grow over the next year for the first time in six months. 

Food and drink manufacturing reported an index of 72.7 in the latest report, up from 70.0 in December. A reading above 50.0 indicates an expected increase in output over the next 12 months, while a reading below 50.0 indicates an expected decline. 

In January, the UK sectors reporting output growth were: food and drink manufacturing (65.1); tourism & recreation (58.3); software services (55.6); industrial services (53.4); real estate (51.0); and automobiles & auto parts manufacturing (50.6). 

Hopes that inflation has peaked 

Jeavon Lolay, head of Economics and Market Insight at Lloyds Bank Corporate & Institutional Banking, said: “Hopes that inflation has peaked underpinned a broad-based recovery in business confidence in January. For the first time since last July, all 14 sectors monitored by the UK Sector Tracker anticipate positive output growth in the year ahead.  

“This cautions against an overly pessimistic view of the economic outlook, although the impact of sustained high inflation and past increases in interest rates will inevitably weaken demand over the coming quarters.” 

Lolay believed the economy-wide expectations for output growth meat employment trends would remain robust as businesses maintain staffing levels to capitalise on prospective opportunities. 

“However, this could pose a problem for the Bank of England if it means that wage pressures and domestically generated inflation prove to be more persistent,” he continued.  

Wage pressures 

Businesses suggested that strong wage pressures have prevented input cost inflation from falling more quickly. The number of survey respondents citing that operating expenses have risen due to increases in staff salaries was 2.3 times higher than the long-run average in January. 

Scott Barton, Managing Director, Lloyds Bank Corporate and Institutional Banking, added: “Businesses have shown huge ingenuity and resilience to capitalise on growth prospects so far, in what has been a challenging environment. 

 “Management teams are recognising opportunities but certainly won’t be blind to the hurdles that remain. In these conditions, prioritising financial flexibility, ability to deploy resources to manage both unexpected downturns and upticks in trading, will be crucial.”