The latest State of Industry report from the Food and Drink Federation (FDF) has revealed that over the “crucial” Q4 trading period, confidence amongst food manufacturers remained low at -31%.
FDF said this was the time period during which consumers looked to fill up baskets with additional treats for the festive season.
Lifting of uncertainty around the Chancellor’s Autumn Budget did provide some relief to businesses, the report found, with confidence rising from a trough of -60% the previous quarter. But with confidence still negative, FDF said the Budget didn’t seem to significantly restore business confidence with concrete measures to stimulate growth.
This was particularly the case among smaller businesses, with half (50%) of SME food and drink manufacturers saying that conditions got worse in Q4 2025, compared to Q3. Similarly, 45% of mid-sized businesses agreed that conditions deteriorated in the golden quarter.
Businesses reported that production costs – which include the cost of energy, ingredients and labour, and regulatory pressures such as the new Extended Producer Responsibility (EPR) packaging tax – rose by 4.4% in 2025. The report found that smaller businesses particularly took a hit, facing increases at an average of 5.3%, which reportedly restricted their ability to invest in productivity gains.
The State of Industry report revealed that there was appetite for growth among small and mid-sized food manufacturers. Two-fifths (40%) of SMEs are looking to grow sales in foreign markets and just over two-fifths (41%) are planning to increase investment in machinery in 2026, which FDF said hints at the ambition to “modernise and automate” factory processes.
FDF calls for Government support with funding
However, with consumer confidence matching that of the low business confidence in Q4 2025 and 39% reporting they are cutting back on essential spending as a result of rising food prices, businesses will have “little opportunity” to recover the impact of rising costs, the report found.
FDF is urging Government to back the growth potential of food businesses with the right support to drive productivity and sustained growth. This includes ensuring that food and drink receives a fair share of Government R&D funding and is not overlooked for support for energy intensive industries.
With many businesses interested in driving sales abroad, FDF highlighted that Government should support these ambitions with targeted support for SMEs to help with exporting and the promotion of British products on the global stage. Replicating the Welsh and Scottish Government’s schemes of support for SME exporters, and promotion at targeted trade shows would cost the UK Government £2.6 million.
“The right Government measures will pay dividends in business confidence, investment, productivity and growth.”
Karen Betts, chief executive of the Food and Drink Federation (FDF), said: “UK food and drink manufacturers are 97% small and medium sized businesses – ambitious, agile and innovative businesses. Government shouldn’t underestimate their potential to drive jobs and growth. We’ve set out a blueprint of practical measures to unlock £50 billion worth of growth, but are yet to see any of these actioned by Government.
“UK food and drink is popular globally, known for its quality, creativity and innovation. Setting the conditions for success here at home while growing those exports is a win-win for Government, industry and communities up and down the country. The right Government measures will pay dividends in business confidence, investment, productivity and growth.”
