In the landscape of UK food and drink manufacturing, a significant downturn in investment signals challenging times ahead. Recent findings from the Food and Drink Federation (FDF) reveal that 41% of manufacturers have either scaled back or completely cancelled their long-term growth investments. Such a trend underscores a broader atmosphere of uncertainty that has enveloped the sector, with confidence levels measured at a staggering -43% for the first quarter of 2025.
This pessimism is particularly pronounced among small and medium-sized enterprises (SMEs), where nearly half (47%) anticipate worsening conditions. A myriad of factors contribute to this outlook, including volatile global economic circumstances and rising operational costs spurred by new government policies. Notably, recent increases in the National Minimum Wage and employer National Insurance Contributions, alongside a substantial £1.4 billion Extended Producer Responsibility (EPR) packaging tax, have compounded financial pressures.
Production costs have surged, with an average increase of 4.5% reported over the year leading up to March 2025. Alarmingly, 22% of food and drink manufacturers encountered cost escalations exceeding 10%. Manufacturers’ expectations suggest that costs will continue to rise, with projected increases of 4.8% in the upcoming year, driven by climbing prices for energy, raw ingredients, and labour.
In light of these unsettling developments, the FDF has made a clarion call to the government to affirm its commitment to nurturing the future health of the food and drink sector. The organisation advocates for a cohesive, cross-government strategy that prioritises industry growth and skill development in forthcoming Food and Industrial Strategies. Balwinder Dhoot, the FDF’s Director of Industry, Growth and Sustainability, emphasised the sector’s vital contribution, stating, “Not only does the food and drink manufacturing sector contribute £37 billion and half a million jobs to communities across the UK, but it’s also fundamental to the nation’s food security.” He further expressed concern over the scaling back of essential investments that are critical for driving long-term productivity and growth.
The backdrop to this investment slowdown paints a stark picture. Research highlights a £14 billion opportunity for enhancement in productivity within the food and drink manufacturing sector. However, achieving these gains necessitates substantial investment in advanced technologies such as artificial intelligence, digitalisation, and automation. The launch of the Food and Drink Technology Taskforce by the FDF aims to address these challenges by fostering collaboration between government and industry stakeholders.
The atmosphere of uncertainty has been indicated by previous FDF reports that show over half of food and drink businesses expressing reluctance to invest due to concerns about forthcoming regulations. In contrast, there remains a resolve among 40% of businesses to increase their investment in research and development, plant machinery, and workforce training in the next year, reinforcing the need for a stable regulatory environment to bolster business confidence.
During these tumultuous times, external factors have significantly influenced the industry’s landscape. With the repercussions of Brexit, the challenges posed by COVID-19, and geopolitical unrest stemming from conflicts such as the war in Ukraine, the sector has encountered an array of obstacles that have amplified existing difficulties. A survey conducted by Johnston Carmichael reflects this sentiment, revealing that 58% of food and drink businesses were optimistic about growth in 2025—a marked decline of 10% from the previous year, largely due to rising costs of Labour and National Insurance Contributions, which remain a critical concern for many.
As the sector wrestles with these mounting pressures, the need for government intervention and support becomes increasingly urgent. By addressing these challenges head-on, there exists a tangible opportunity not just to safeguard the current state of the food and drink industry but to realise a more prosperous future, ultimately enhancing food security and economic stability across the UK.
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Source: Noah Wire Services
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