Sector Review by Lloyds TSB

The UK food & drink sector has weathered the recession better than overall manufacturing and has rebounded this year. Lower input price inflation has helped to support margins and ROCE has recovered strongly. Food & drink resilient in the downturn and now rebounding

The UK food & drink sector has weathered the recession better than overall manufacturing and has rebounded this year. Lower input price inflation has helped to support margins and ROCE has recovered strongly.

The sustained fall in the pound has supported exports, but a large part of the sector’s trade deficit is ‘structural’, so that higher import prices is not likely to lead to significant domestic product substitution.

Moreover, domestic consumption will be constrained by prospects of tax rises and job insecurity, and this will limit the potential for domestic price increases, meaning that the impetus to cut costs and improve productivity will remain strong.

The sector is exposed to significant financial market risks, including global agricultural prices, energy prices, FX and interest rates.

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