Almost half of bakery firms in the UK are making a loss, with many finding it difficult to pass on cost inflation to their customers, according to a new report from research company Plimsoll on the baking industry.

The report said sales fell on average by 13% among the firms that made a loss last year, accounting for nearly half the market. The other 50% of companies saw sales increase on average by 8%.

Also worrying was the statistic that 64% of companies reported a fall in pre-tax profit margins last year, with an average of 0.9%, down from 3.9% the year before.

Plimsoll’s lead analyst David Pattison said: "Every company in the UK baking industry is being squeezed by ever-increasing costs. Many are reluctant to pass on price rises for fear of losing customers. But falling profit margins across the industry is the first warning sign that this strategy has become unsustainable."