IN Brief:
- Net confidence improved quarter-on-quarter, but remained negative through Q4 2025.
- Producers reported continuing cost pressure across energy, labour, ingredients, and packaging compliance.
- SMEs signalled 2026 intent to invest in automation and pursue export growth.
Food and drink manufacturing confidence remained in negative territory through the 2025 Christmas trading period, with the Food and Drink Federation (FDF) placing net business confidence at -31% for Q4 2025. The quarter represented an improvement from the -60% recorded in Q3 2025, but the latest reading still reflects a sector operating under sustained cost and regulatory pressure during its highest-volume trading window.
FDF said half of small and medium-sized businesses reported that conditions deteriorated in Q4 2025 compared with the previous quarter, with 45% of mid-sized businesses reporting the same. Reported production costs — including energy, ingredients, and labour, alongside compliance demands — rose by an average 4.4% across 2025, with small businesses seeing average increases of 5.3%, constraining discretionary spend on productivity upgrades.
A major compliance cost singled out by manufacturers is the UK’s Extended Producer Responsibility (EPR) regime for packaging. Government-published base fees for the first year of the scheme (2025 to 2026) set per-tonne rates by material type and confirm PackUK as scheme administrator, with the stated intent of shifting household packaging waste management costs onto producers while funding local authority collection and disposal. The same publication sets out that modulated fees are due to be introduced from 2026, and references the interaction with the planned deposit return scheme for in-scope drinks containers, currently set to launch in October 2027.
Despite the pressure, the FDF data indicates a continued appetite for expansion among smaller manufacturers. Two fifths of SMEs said they want to grow sales abroad, while 41% plan to increase investment in machinery and automation during 2026, pointing to ongoing interest in modernising processing lines and improving labour productivity, even while confidence remains depressed.
Karen Betts, Chief Executive, The Food and Drink Federation, 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 of these actioned by government.”
Alongside packaging policy, the regulatory pipeline remains active in areas linked to reformulation and marketing controls. In late January 2026, government confirmed acceptance of an updated nutrient profiling model (NPM 2018) following its long-running review process, aligning scoring criteria more closely to free sugars and fibre measures used in dietary guidance. Separately, ministers have set out the intention for a “Food Inflation Gateway” process designed to assess new regulations for their impact on food businesses and food prices, with sequencing intended to avoid multiple major requirements landing simultaneously.
