Food manufacturers more optimistic about business

Nearly a half (44%) of food and drink manufacturers increased capital spending in the second quarter of this year – encouraged by a third successive quarter of increased business optimism – revealed the  FDF Business Confidence Survey.

Other factors driving a resurgence in food and drink manufacturing optimism were an increase in the annual investment allowance this year and the prospect of growing sales in the third quarter. Hopes for a revival in sales were underpinned by the recent heatwave and the arrival of the royal baby​ – both boosting sales of food and drink – and signs of an improvement in the general economy.

Expecting sales growth​

While second-quarter sales grew in line with inflation, 20% more businesses were expecting sales growth in the third quarter.

Businesses also expected exports to remain strong over the period.

More than 70% of respondents expected product prices to remain broadly stable in the third-quarter due to summer promotions.

Steve Barnes, FDF’s economic and commercial services director, said: “This third successive quarter showing increasing business optimism amongst food and drink manufacturers is good news for the UK economy.​

‘Optimistic about increased sales’​

“Despite challenging business conditions brought on by poor weather and high ingredient prices, manufacturers achieved stability in the second quarter and are optimistic about increased sales in the next.”​

Manufacturers were investing in innovation and workforce skills, which was helping to further rebalance the UK economy, he added.

The increased capital expenditure by 44% of businesses responding to the survey can be attributed partly to temporary changes to the Annual Investment Allowance, said Barnes. The change offers businesses tax relief on investments of up to £250,000.

“I would encourage other food and drink businesses planning investment to make the most of this measure while it is available,”​ he said.

Food and drink managers’ renewed optimism was shared by colleagues in general manufacturing, according to the latest Confederation of British Industry (CBI) quarterly Industrial Trends Survey.

It reported a rise in new orders in the manufacturing sector during the three months to July for the first time in a year. Production also continued to rise modestly.

Manufacturers were more optimistic about both the general business situation compared with the previous three months, and export prospects for the year ahead.

Stephen Gifford, CBI director of economics, welcomed the results. “Manufacturers have seen a pick-up in activity across the board this quarter, with new orders and production continuing to rise,”​ he said.

New orders and production​

“Optimism in the sector has risen again, and demand conditions are expected to improve further in the coming three months.”​

Rising confidence was reflected in firms’ headcount, which was rising at the fastest rate in a year, he added.

Meanwhile, Chancellor George Osborne seized on statistics that showed the UK economy grew by 0.6% in the three months to June as evidence that the economy was “on the mend”.​

Output rose in manufacturing, construction services and agriculture sectors, said the Office for National Statistics. The figures mean the economy has regained over half the 7.2% of output lost in the recession of 2008–09.

More information about the FDF survey is available here.