Confidence among UK food and drink manufacturers remained firmly in negative territory during the crucial golden quarter, with businesses reporting a -31 per cent outlook over Q4 2025, according to the latest State of Industry report from the Food and Drink Federation (FDF).

While this marked a notable improvement from the -60 per cent recorded in Q3, following the lifting of uncertainty around the Chancellor’s Autumn Budget, the figures underline the fragile state of the UK’s largest manufacturing sector at a time when festive trading would typically buoy sentiment.

Half of SME manufacturers said conditions worsened in Q4 compared with the previous quarter, while 45 per cent of mid-sized businesses also reported deterioration over the peak trading period.

Costs continue to bite

Production costs rose by an average of 4.4 per cent across 2025, driven by higher energy, ingredient and labour costs, alongside regulatory pressures such as the Extended Producer Responsibility (EPR) packaging tax.

Smaller businesses were hit hardest, facing average cost increases of 5.3 per cent, further constraining their ability to reinvest in productivity or absorb price pressures.

The data comes at a time when consumer confidence remains subdued. With 39 per cent of shoppers reporting they are cutting back on essential spending due to rising food prices, manufacturers face limited scope to recover higher costs through pricing.

Appetite for growth remains

Despite these headwinds, the FDF report points to a resilient growth ambition among the sector’s smaller players.

More than two fifths (41 per cent) of SMEs plan to increase investment in machinery and automation in 2026, signalling a push towards modernisation and improved factory efficiency. Meanwhile, 40 per cent are looking to grow sales in foreign markets, highlighting exports as a key strategic priority.

With 97 per cent of UK food and drink manufacturers classified as small or medium-sized enterprises, the FDF argues that targeted government backing could unlock significant growth potential.

Calls for government action

The FDF is urging government to act on its blueprint for growth, which it says could unlock £50bn in value for the sector. The trade body is calling for:

• A fairer share of government R&D funding for food and drink manufacturing
• Recognition of the sector in support schemes for energy-intensive industries
• Targeted export support for SMEs, including trade show promotion and dedicated assistance

The federation estimates that replicating Welsh and Scottish Government export support schemes across the UK would cost £2.6m.

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Karen Betts, chief executive of the FDF, said: “UK food and drink manufacturers are 97 per cent 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 £50bn worth of growth, but are yet to see any 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.”

Inflation scrutiny and regulatory pressure

The FDF also called on government to maintain its proposed ‘Inflation Gateway’ mechanism, ensuring that new policies are assessed for their potential impact on production costs and, ultimately, shopper prices.

This includes forthcoming changes to the Nutrient Profile Model (NPM), which determines which products fall under restrictions on advertising less healthy foods. The industry body is urging ministers to carefully evaluate how such changes could affect manufacturers’ ability to invest in reformulation and the development of healthier products.

With business confidence still deeply negative and consumer spending under strain, the sector enters 2026 balancing rising costs against an enduring, if cautious, ambition to modernise, automate and export its way to growth.