Confidence crash exposes sector vulnerability
Business confidence among UK food and drink manufacturers has dropped to ‑64%, the FDF reports.
This mirrors the extreme lows seen during the 2022 energy crisis and the early months of the pandemic. Moreover, outlook confidence for the next quarter sits at ‑51%, showing that most companies expect conditions to worsen into Q2.
The FDF attributes this collapse to the severe impact of the war in Iran on global supply chains, energy markets and input costs. As a result, manufacturers are facing sustained pressure with little sign of relief.
Energy costs push firms to breaking point
Rising energy prices remain the most destabilising factor. For one fifth of manufacturers, energy now accounts for more than 10% of operating costs. For nearly a tenth, it reaches 20–24%.
Additionally, plastic packaging costs have risen by up to 15%, transport costs by more than 20%, and fertiliser prices continue to climb due to the Gulf region’s dominance in global urea production. These pressures are feeding directly into ingredient inflation.
Consequently, 82% of food and drink businesses say they will have to raise prices to cover escalating costs.
Workforce and investment cuts threaten long‑term resilience
The report shows that companies are now being forced into decisions that will weaken the sector’s long‑term capacity.
- Headcount reductions — a third (33%) plan to restructure or reduce staff.
- Investment pauses — over a quarter (26%) will pause or cancel planned investment.
- Training cuts — one fifth (21%) expect to reduce staff training.
These measures are seen as limiting future productivity, innovation and competitiveness. They also risk slowing the sector’s recovery once global conditions stabilise.
Government inflexibility adds pressure
The FDF stresses that while low confidence is expected during a global crisis, the sector has far less room to manoeuvre than during the last inflation spike. Then, companies absorbed some rising costs through internal savings. Now, that flexibility has been exhausted.
However, government support has not adapted. The FDF highlights two major concerns:
- Energy support is not being extended to intensive users across food and drink production.
- Regulatory demands continue to increase, including packaging reforms, employment law changes, Nutrient Profiling Model updates and SPS transition requirements.
This combination is creating what the FDF describes as a “maelstrom of rising costs” that businesses cannot absorb.
Two thirds call for energy support
The report shows that 69% of manufacturers say energy support must be the government’s top priority. They argue that targeted, time‑limited relief — similar to the scheme introduced during the Ukraine crisis — would help stabilise production costs and protect consumers from further food inflation.
Additionally, companies are calling for reduced regulatory pressure, including:
- Simplifying packaging recycling reforms (38%)
- Phasing in the Employment Rights Act (33%)
- Delaying changes to the Nutrient Profiling Model (28%)
- Ensuring realistic transition periods for the EU SPS deal (23%)
These measures, they argue, would give businesses the breathing room needed to maintain resilience.
Rising prices and slower growth ahead
With 82% of companies planning price increases, further food inflation is likely. The FDF forecasts that food and drink inflation could reach 9% by year‑end without intervention.
At the same time, reduced investment and shrinking workforces will weaken the sector’s ability to innovate, automate and expand. This could leave the UK food system more vulnerable to future shocks.
FDF: Government must work “in partnership”
FDF Chief executive Karen Betts warns that the sector cannot absorb another wave of cost shocks alone. She argues that government must work “in much better partnership” with industry to stabilise inflation, protect jobs and safeguard the UK’s food security.
