Insight & Analysis

Press release: Food and drink: an outperforming sector navigating troubled waters

Published: Oct 2019

30th September 2019 – Food & Drink has consistently outperformed over the past decade, helped by strong sales in overseas markets. However, latest NatWest PMI data provide an early warning that a growth slowdown has taken hold in the second half of 2019.

Newspaper press release

It is against this backdrop that we have compiled new Purchasing Managers’ Index® (PMI®) data to examine the production trends, export sales and business expectations signalled by UK Food & Drink manufacturers.

At 49.9 in August, down from 50.2 in July, the headline seasonally adjusted NatWest UK Food & Drink PMI® – a single figure measure of developments in manufacturing conditions – registered below the crucial 50.0 ‘no-change’ value for the first time since March 2009. The latest reading is also much weaker than the average seen since the index began in 1998 (53.9).

The slowdown in Food & Drink business conditions during August broadly mirrors the trend seen across the manufacturing sector as a whole. The equivalent IHS Markit/CIPS UK Manufacturing PMI® reading was 47.4 during August, its lowest for seven years.

August data from the Food & Drink PMI reveals that new business volumes were close to stagnation, with the rate of expansion the weakest for more than ten years. Softer demand conditions, especially in export markets, held back production volumes in August. The latest rise in manufacturing output across the Food & Drink category was much slower than in the first half of 2019.

The inventory cycle appears to have amplified some of the slowdown from the peaks seen towards the beginning of the year. Before the original Brexit deadline of 31st March, stocks of raw materials were accumulated at the fastest pace since the start of the index in 1998. Post-production inventories also increased sharply as manufacturers boosted output in the first quarter of 2019.

Meanwhile, there are signs that risk aversion has increased among Food & Drink manufacturers. Reflecting this, the latest survey data points to the largest decline in staffing numbers across the sector since June 2009.

Some firms have started to cast a more cautious eye towards the near-term outlook, with Brexit uncertainty and an intensification of global trade tensions taking their toll on business optimism across the Food & Drink sector. While still expecting growth in the coming 12 months, the latest survey data reveals that business confidence among Food & Drink producers is the lowest since this index began in 2012.

A key reason to be optimistic that UK food and drink producers can decouple from the recent economic slowdown is the sector’s impressive record for product innovation, productivity gains, and export success in new overseas markets.

The export success of Scotch whisky is a perhaps case in point, which has tapped into the opportunities provided by fast-growing consumer demand in emerging markets. Whisky exports to India and Japan have doubled since 2013, while sales to China and the United Arab Emirates have risen by around 50% over the same period.


Ian Burrow, Head of Agriculture & Renewable Energy, NatWest, commented: “Following a decade of consistent outperformance, the data from the first half of this year suggests that a growth slowdown has taken hold across the Food and Drink sector in the UK. Demand has slowed – particularly in export markets – and with stocks of raw materials depleting slightly over the summer, there is no doubt that the sector is facing challenging conditions.

“As we look into the immediate uncertainties that we face as a consequence of Brexit, NatWest remains committed to supporting our customers through whatever changes and adjustments need to be made over the longer term. Our team of qualified experts is ready to collaborate with food and drink producers right across the UK, and to provide the advice and support necessary to help businesses navigate the challenges ahead.”

Sebastian Burnside, NatWest Chief Economist, commented: “In a world where growth has become harder to find the Food & Drink sector makes a refreshing change and stands out as one of the UK’s top performing industries. Being so outward looking, the recent slowdown of the world economy is clearly taking its toll, but that shouldn’t detract from the remarkable growth achieved over the last decade.

“Focusing on the last year, output from the Food & Drink industry was 2.6% higher than the previous 12 months. Solid growth against any normal benchmark, but particularly strong compared to the 1.6% managed by the broader UK economy and slight contraction of manufacturing overall.”

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