A new report released this week by the Food and Drink Federation (FDF), confirms that the UK food industry faces several ongoing challenges hindering economic growth, including rising production costs and the impact of the Ukraine conflict.

Monthly GDP was 1.5% above pre-pandemic levels in February, however the UK economy grew by just 0.1%, falling short of the 0.3% growth predicted by market analysts.

Overall, manufacturing contracted by 0.4% and was the main driver of negative growth. The FDF said that ongoing supply and labour shortages as well as substantial inflationary pressures were having an impact on manufacturing.

The FDF added that these figures largely precede the invasion of Ukraine, which means that the supply disruptions and price rises brought on by the conflict will only be reflected in the figures of the coming months. It predicted that UK GDP will contract in the second quarter, as firms reduce their investment and households spending slows down.

‘Vulnerable to market upheaval’

According to the FDF, the food and drink sector appears to be “particularly vulnerable to current market upheaval.”

An ONS survey found that 63% of food and drink businesses (which included manufacturers, wholesalers and retailers) reported in March that energy prices had already impacted on production and/or supply. That compares to 38% across all UK sectors.

The survey also found that food and drink businesses were twice as likely than the average UK business to report additional transportation costs, higher costs due to increased red tape and extra costs for imported production factors.

In the wider manufacturing industry, 52% of manufacturers reported global supply disruptions in March, up from 44% in February and above the UK average of 28%.

Looking ahead, the FDF reported that “headwinds are intensifying”. According to the trade body, Britain’s decoupling from the Russian economy as result of the Ukraine conflict puts food and drink manufacturers “first in the line of fire, as they will withstand the worst of disruptions in food supply chains and energy cost rises.”