Confectionery sector faces turbulence from key inflationary pressures

London, United Kingdom - September 23, 2022: UK Chancellor of The Exchequer Kwasi Kwarteng leaves 11 Downing Street in London, England.

With market turbulence continuing to dominate many headlines around the world, latest analysis from GlobalData revealing that the chocolate and wider confectionery market remains notably vulnerable to inflationary pressures is a concerning prospect for the sector.

While the organisation revealed that growth projects were presently on a track of just over 2% annually for the industry, present levels of inflation – certainly in the UK at least, are standing at a troubling figure of around 10%, which cannot be sustained for any period.

On a broad picture, the war in Ukraine is at least in part responsible for the present relative instability, as well as rising costs in logistics and sourcing of ingredients from around the world that have all created their own pressures.

As far as the UK is concerned, the government’s dramatic and unexpected move of announcing the highest level of tax cuts in 50 years – which stand to benefit the highest 5% of earners the most, have sent financial markets into panic, with the pound reaching its lowest level against the dollar in 37 years this week.

As one young British entrepreneur in the confectionery industry duly noted today – the fiscal policy that the incoming government under new chancellor Kwasi Kwarteng (pictured) appears to be completely oblivious of the wider impact of such a shock move on radical tax cutting.

Clearly the net effect of the billions that the government has now borrowed to fund its agenda is that it is in fact making borrowing far more expensive, with mortgage payments correspondingly set to rise and place further pressure on stretched company and personal budgets.

I would agree with his view that this is not a sustainable position and without equally radical measures from the Bank of England forthcoming, will leave the British economy in a weakened, rather than improved condition.

The fact that there has been no official budget analysis linked to this near unprecedented strategy is particularly alarming. Historians have noted that it has only been tried once in the past 45 years – in the early 1970s, and was doomed to failure then. There’s no reason to imagine that it will work any better this time around – at least that’s the view of many experienced economists, and voices within the ruling Conservative party itself.

In a further blow, the radical policy has also been criticised by the International Monetary Fund, which has stated that it will in fact likely lead to greater levels of inequality, and additional pressure on the price of goods.

So what in actuality will this mean for industry and the confectionery, snacks and bakery segments you might wonder? Well, for starters, such uncertainty will doubtless make many companies wary of making capital investments against such a backdrop, leading to further market instability. According to chancellor Kwarteng has said that he is ‘confident’ that his measures will drive economic growth, though the evidence, just several weeks into his tenure in the role, would not appear to support this assertion. It’s certainly going to be an interesting few weeks and months ahead for financial analysts, as much as industry as a whole, that’s for sure.

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