Tighter spending and higher commodity prices will combine to make 2008 a much tougher year in the UK bakery market, according to business analyst Plimsoll Publishing.

Plimsoll has predicted that companies with large cash surpluses will be able to make some "dirt-cheap acquisitions" in 2008 as others begin to fail.

It said that in 2007 the average growth in the bakery sector was 4.2%, despite 33% of companies seeing their sales decline. Margins in 2007 averaged around 3.4%.

The company’s senior analyst, David Pattison said: "Any company that is already finding it a struggle is likely to experience even tougher times in 2008 unless immediate measures are taken to reduce costs and improve margins." Companies with escalating debts will find it difficult to stay competitive, he added.

Long-term strategy, rather than panic measures, is essential, according to Plimsoll.

Some smaller firms, with a turnover of £3m or less, lost out on sales in 2007 but still enjoyed healthy margins, added Pattison: "These firms have managed to do very nicely for themselves by trading in niche products."