Recent findings from the Food and Drink Federation (FDF) reveal a troubling trend in the UK’s food and drink manufacturing sector, with 41% of businesses scaling back or cancelling long-term investment projects. This decision stems from enduring low confidence levels, which were recorded at an alarming -43% in the first quarter of 2025. The findings are part of the FDF's latest State of Industry report, which highlights a sector grappling with formidable challenges.

A significant aspect of the report is the stark outlook shared by the more than a third of surveyed businesses. Among these, nearly half of small and medium-sized enterprises (SMEs) expressed fears of further deterioration in market conditions. Contributing to this bleak environment are escalating costs tied to new government policies, including increases in the National Minimum Wage, employer National Insurance Contributions, and a £1.4 billion Extended Producer Responsibility (EPR) packaging tax. These factors are compounding the financial pressures manufacturers face, exacerbating the pushback against investment in long-term growth.

Production costs have surged, escalating by an average of 4.5% over the previous year, with 22% of manufacturers reporting increases of 10% or more. Anticipations for the next 12 months are equally disheartening, as manufacturers expect their operational costs to rise by a further 4.8%. This relentless cost climbing is predominantly attributed to energy, ingredient, and labour price hikes, which are reshaping the industry landscape.

Echoing the urgent need for government intervention, Balwinder Dhoot, the FDF's director of industry, growth and sustainability, stressed that the food and drink sector contributes £37 billion to the UK’s economy and supports approximately half a million jobs. He called for decisive action to help bolster the sector's resilience, asserting that a coherent governmental approach is essential for stimulating growth and addressing the skills gap within the industry. "The government must reflect the value that food and drink manufacturing has to our country by ensuring growth for our industry is a top priority in its upcoming Industrial and Food Strategies," he stated.

In a broader context, the pressures faced by food manufacturers reflect a wider trend within UK manufacturing. Recent data from the Confederation of British Industry (CBI) indicates that the sector is experiencing significant downturns, particularly in export orders, which are at their lowest point since September 2024. A mix of a global trade war and U.S.-imposed tariffs has dampened investment sentiments and heightened financial challenges, revealing the interconnectedness of UK manufacturing with global markets.

The situation is further complicated by new labelling requirements under the Windsor framework, which will apply to all meat and dairy products as 'Not for EU'. The FDF has voiced concerns that this will impose additional costs, hinder exports, and deter investment, particularly adversely affecting smaller firms unable to manage separate production lines for UK and EU markets.

While exports of popular products such as whisky and chocolate remain strong, overall food and drink exports to the EU have plummeted by 34% since Brexit, highlighting the added complexities and bureaucracy now governing cross-border trade. Such figures underscore the urgent need for a reassessment of strategies guiding trade relationships, with calls for the UK government to pursue negotiations that could mitigate the negative implications of existing tariffs.

In this climate of uncertainty and economic strain, the food and drink manufacturing sector’s potential for recovery hinges significantly on government support. As businesses navigate rising costs and turbulent market conditions, the necessity for a supportive policy environment has never been clearer. The path to revitalising this essential sector will require not only immediate relief but also long-term strategies that enhance growth and innovation.