It reached -31%, an uplift from -64% in the previous quarter, but 91% of businesses reported that businesses were the same or worse than in Q1 2026.
The report showed that over the past year, British food manufacturers had seen production costs rise by an average of 3.8%. FDF stated that as margins become squeezed, food manufacturers’ ability to absorb additional cost pressure and to make investments in their long-term growth and resilience is threatened. For example, the State of Industry report showed that the majority of businesses don’t have plans to increase investment in skills (87%) or R&D (84%) in the coming year.
FDF also found that businesses were becoming increasingly exposed to external shocks, with more than a third of manufacturers seeing costs rise by 5%-10% as a result of the conflict in the Middle East.
It said that while nearly two-thirds of businesses (60%) have absorbed all of this additional cost pressure up to now, this can’t last. Around three-quarters (72%) of manufacturers have said that they will need to raise prices for consumers, meaning shoppers are likely to see the impact of these cost increases in the next year.
FDF called for urgent action to be taken to rebuild business confidence and sector resilience, especially as drought across Europe is causing the cost of key ingredients for manufacturers to rise, putting further upward pressure on prices.
Businesses tell PM not raising labour costs above inflation should be a priority
Food manufacturers have now shared how the Prime Minister could help relieve future cost pressure, galvanise investment and growth in the industry, and reduce the impact of additional supply chain pressures on consumers.
Three-quarters (75%) of businesses, including 91% of SMEs, said that the Government should prioritise not raising labour costs higher than inflation, having already covered changes to National Insurance Contributions and National Living Wage over the past year. Half of food and drink manufacturers (50%) urged the new administration to review regulation to limit excessive burden on food and drink businesses. This comes against a backdrop of regulatory pressures, from Extended Producer Responsibility fees on packaging, to changes to advertising restrictions coming at once.
More than half (56%) of businesses reportedly want the Government to focus on measures to reduce energy costs for businesses, and half (50%) also wanted the Government to bring in the SPS agreement to reduce friction to trade with the EU. More than a third would welcome support with skills (34%).
Balwinder Dhoot, director of growth and sustainability at FDF, said: “Rising costs and policy uncertainty are dampening investment, so it’s no wonder that the mood among food and drink manufacturers has been persistently low. Especially with extreme weather conditions putting increasing price pressure on businesses, Andy Burnham and his team need to set a new direction for the food system and demonstrate that they take the nation’s food security seriously.
“Food and drink businesses have spoken on the measures that would help them invest and bring opportunities to the communities where they’re based. We hope to see some of these actioned in the upcoming Budget, to help restore confidence and build a more competitive, innovative and resilient food system.”
