Food and drink manufacturers are calling on Prime Minister Andy Burnham to curb labour and energy costs as confidence across the sector remains firmly negative.

The Food and Drink Federation’s latest State of Industry report found business confidence stood at -31 per cent in the second quarter of 2026, marking the ninth consecutive quarter of negative sentiment.

While this represented an improvement from -64 per cent in the previous quarter, 91 per cent of manufacturers said conditions were either unchanged or had deteriorated since Q1.

The survey, which was conducted before Burnham became Prime Minister, also found that 88 per cent of respondents believed business conditions had worsened since Labour came to power.

Manufacturers are now urging the new administration to use its first Budget to ease the pressure on the sector and help unlock investment.

Three quarters of respondents said the government should avoid increasing labour costs above inflation, rising to 91 per cent among SMEs, following recent increases to employer National Insurance contributions and the National Living Wage.

Meanwhile, 56 per cent called for action to reduce business energy costs and half said ministers should review the regulatory burden facing the industry.

Manufacturers warn further food price rises are coming

Food and drink producers have seen their average production costs, including labour, energy and ingredients, climb 3.8 per cent over the past 12 months, according to the FDF.

The squeeze on margins is already limiting companies’ ability to invest, with 87 per cent of respondents having no plans to increase spending on skills over the coming year and 84 per cent not planning to boost R&D investment.

Manufacturers are also facing another wave of pressure from disruption linked to the conflict in the Middle East.

More than a third of businesses said the conflict had pushed their costs up by between five per cent and 10 per cent.

Although 60 per cent have so far absorbed the entire increase, 72 per cent warned they would ultimately need to pass some of the additional costs on to shoppers.

The FDF said this meant consumers were likely to see the impact feed through into food prices next year.

Drought conditions across Europe are also increasing the cost of key ingredients, adding another layer of inflationary pressure.

Half of manufacturers said they wanted the government to deliver a sanitary and phytosanitary agreement with the EU to reduce trading friction, while 34 per cent called for additional support around skills.

FDF director of growth and sustainability Balwinder Dhoot 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.”

He added that measures to reduce costs and improve competitiveness would help manufacturers invest in their businesses and build a more resilient UK food system.

Sign up here to get the latest grocery and food news each morning