Consumer food costs could drop sharply through the end of 2023 after food and drink manufacturers slashed their prices in September to pre-pandemic levels, according to the UK Sector Tracker Report from Lloyd’s Bank.
The 48.8 tracker reading, which measures output charges, was down for the second consecutive month and was the lowest since February 2020. Lloyd’s Tracker covers 14 different sectors. Food and Drink is the only one to have experienced lower pricing.
“September’s data is a perfect example of the relationship between pricing, demand, and growth,” says Nikesh Sawjani, Senior UK Economist at Lloyds Bank Corporate & Institutional Banking. “Food and drink manufacturing sector output grew faster than other UK sectors as producers lowered their prices in response to five consecutive months of falling costs.
“If producers continue to pass on cost reductions, we could see food price inflation fall sharply in the coming months. Further signs of easing inflation and a cooling UK labour market could be a signal that the Bank of England’s interest rate increases so far, are having the desired effect.”
Food inflation, which has continued to outpace declining inflation overall, has proven a massive obstacle for struggling families trying to provide three square meals per day.
A slight fall in input costs that impacted retailers and wholesalers could be a linchpin for further price reductions. Now sitting at 42.4 on the tracker (below 50 means food prices are falling), it is at its lowest levels since November 2015.
“The slowdown in food and drink manufacturers’ input costs is now clearly feeding through to the prices they charge their customers and, as a result, what consumers are paying at the till,” Annabel Finlay, Managing Director, Food, Drink and Leisure at Lloyds Bank Commercial Banking, added. “If this trend continues, there is an opportunity for producers to leverage rising demand in the months ahead, particularly in the run up to Christmas.”
Still, Finley remains guarded rather than embracing the trend fully.
“The UK food and drink supply chain doesn’t exist in a vacuum,” she says. “There are several factors that could see this positive trend reverse, not least the broader economic outlook for the UK. Maintaining a strong working capital position will help ensure that producers are prepared for any further fluctuations in demand from their customers.”
Thanks to the trimming back of prices, new order demand shot up by more than 10 points on the tracker to 60.7 in food and drink manufacturing.