Arla Foods UK - the country's biggest-milk supplier - says that trading remained in line with its expectations, but the higher price of oil was a concern for distribution and packaging costs.

"Inflationary costs identified in our January AGM statement have been recognised by our customers and recovered from the market place, however, the continuing rise of the price of oil is a concern," the maker of Lurpak butter and Cravendale milk reported in a trading update ahead of first-half results on May 27.

The firm said its supermarketmilk business had maintained volumes in a competitive market and its home-delivery business had outperformed rivals.

Arla Foods UK is 51 per cent-owned by Nordic dairy cooperative Arla Foods Amba and was formed in October 2003 when the Danish-Swedish group merged with Britain's Express Dairies.

Analysts expect the firm to make a profit before tax, goodwill and exceptional items of £51.5 million in the year to September 30, according to an average estimate.

Arla's shares closed at 621/2p up 1/2p.