Half of small businesses saw conditions deteriorate in ‘golden quarter’ for food manufacturers
- Confidence was downcast at -31% over food manufacturers’ crucial Christmas trading period, with half of small businesses saying they felt conditions for businesses got worse compared to Q3
- Production costs rose on average 4.4% over 2025 for food manufacturers in 2025, rising up to 5.3% for small businesses
- There’s a healthy appetite for growth amongst the sector’s smaller businesses, with more than two fifths (41%) looking to increase investment in machinery and automation, and two fifths (40%) wanting to grow sales abroad
- FDF is urging government not to overlook the growth potential of the nation’s most innovative and ambitious food businesses by calling to see real action on its blueprint for growth
Over the crucial Q4 trading period, when consumers usually look to fill up baskets with additional treats for the festive season, confidence amongst food manufacturers remained downcast at -31%, according to the Food and Drink Federation’s (FDF) latest State of Industry report.
Lifting of uncertainty around the Chancellor’s Autumn Budget did provide some relief to businesses, with confidence rising from a trough of -60% the previous quarter1. But with confidence still negative, the Budget didn’t seem to significantly restore business confidence with concrete measures to stimulate growth. This was particularly the case amongst 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 like the new Extended Producer Responsibility (EPR) packaging tax – rose by 4.4% in 2025. Smaller businesses particularly took a hit, facing increases at an average of 5.3%, restricting their ability to invest in productivity gains.
In spite of these challenges, the State of Industry report reveals that there’s appetite for growth amongst 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 hints at the ambition to modernise and automate factory processes.
However, with consumer confidence matching that of the low businesses confidence in Q4 2025, with 39% reporting they are cutting back on essential spending as a result of rising food prices2, businesses will have little opportunity to recover the impact of rising costs.
FDF is urging government to match industry’s ambition and back the growth potential of food and drink’s most innovative businesses with the right support to drive productivity and sustained growth. This includes ensuring that, as the UK’s largest manufacturing sector, 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, 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.
Karen Betts, Chief Executive, 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 £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.”
Government should also maintain its commitment to put any upcoming policy through an ‘Inflation Gateway’ to assess what their impact would be on driving up production costs for food businesses, and in turn, prices for shoppers. This includes its proposals to change the Nutrient Profile Model (NPM) – the model used to assess which foods will fall under restrictions against advertising less healthy foods – to determine the impact on businesses’ ability to invest in developing healthier products.
Notes to Editors
Read the Q4 State of Industry.
- Businesses confidence was at -60% in Q3 2025, and -40% in Q2 2025
- https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/bulletins/publicopinionsandsocialtrendsgreatbritain/december2025
About FDF
The Food and Drink Federation (FDF) gives a voice to the food and drink manufacturing industry – the UK’s largest manufacturing sector. We contribute over £38bn to the country's economy, supporting half a million jobs and driving growth at home and abroad. For more information on the FDF and the industry we represent, visit www.fdf.org.uk.
For further enquires please contact the FDF Press Office or contact 020 7420 7140.