Last month (June 2023) was the first month since February 2020 where food and drink manufacturers reduced factory gate prices, according to the Lloyds Bank UK Sector Tracker.
The trend emerged amid falling production costs, which firms took advantage of to lower prices and pass the benefits down the supply chain.
The Lloyds tracker showed a food and drink sector reading of 49.4 in June, where anything below 50 represents a price reduction. This is compared to a reading of 60 in May, just a month earlier.
Meanwhile, production costs fell for a second month in a row, reading 45.7 in June and 49.4 in May.
Manufacturing financial conditions remain volatile
Annabel Finlay, managing director for food, drink and leisure at Lloyds Bank Commercial Banking, hopes that the lower production costs facing manufacturers gives them the confidence to lower prices and rebuild their “financial foundation”.
“This could be good news when it comes to the future direction of UK food price inflation, but it will likely be some time before any positive effect is seen on the price consumers pay at the till,” Finlay added.
However, Finlay noted that the continued volatility of global financial markets meant there was no guarantee input costs would keep falling in the future.
“There are many variables that affect the shelf price shoppers see – including the input price pressures faced by businesses in other parts of the supply chain,” she said.
“For now, producers will be taking stock of their position, working with partners to forecast as best they can and ensure they have the working capital flexibility they need to adapt to whatever lies ahead.”
In other news, global sugar prices rose by more than 40% during the first half of 2023, with further increases expected between now and the start of next year.
