Convenience retailers are expected to face more challenges ahead, with the food and drink manufacturers warning that mounting pressures on manufacturers will push food prices in UK even higher.
According to the latest State of Industry survey released by Food and Drink Federation (FDF) on Wednesday (Aug 27), confidence among food and drink manufacturers remains concerningly low, with negative confidence for a fifth consecutive quarter.
At -40 per cent, confidence among manufacturers has remained low and failed to recover since it plummeted to -47 per cent following the Autumn Budget at the end of 2024.
The study highlights that the impact of that Budget and other recent policy decisions continues to concern food and drink manufacturers.
More than eight in ten (84 per cent) said that the ongoing financial impact of recent government policies – such as National Insurance changes and the Upcoming Extended Producer Responsibility (EPR) packaging levy – was one of their biggest concerns for the year ahead, while nearly two-thirds (63 per cent) said it was a decline in consumer confidence.
The cost of ingredients and commodities (50 per cent), a shortage of skilled workers (37 per cent), the cost of energy (32 per cent), and government prioritising other sectors for support (21 per cent) were all also major causes for concern for the UK’s food and drink manufacturers.
With these mounting pressures, average production costs increased 6.3 per cent in the last 12 months and are expected to rise a further 3.6 per cent in the year ahead. This comes after a period of record high inflation, with food prices in UK went 36 per cent higher than they were five years ago and with rates of inflation steadily on the rise over the last year.
As manufacturers continue to face pressures on all fronts, FDF states that these rising costs will inevitably filter down to the prices shoppers see in the supermarkets.
Meanwhile, two-fifths of businesses (41 per cent) are expecting to decrease their employee headcount over the next 12 months.
“Businesses are continuing to grapple with the impact of last year’s Budget alongside steadily rising input costs, so it comes as no surprise that business confidence across food and drink manufacturers remains strikingly low,” said Karen Betts, Chief Executive of the FDF.
“Energy, commodity, transport, employment, and other costs are rising across the board, on top of the growing costs of regulation. As before, companies will try to shield consumers for as long as possible, but this means that inevitably, shop prices will rise. These are particularly marked at the moment in meat, dairy, chocolate, and coffee.
“It’s fair to say too that companies are nervous about this autumn’s Budget. It’s critical that the Chancellor does not increase costs to hard-pressed businesses further, but instead acts decisively to attract new investment into our sector.”
The report notes that growth in the UK’s food and drink manufacturing industry has stalled, with production levels in 2024 just 1.5 per cent higher than 2009 levels, when the sector last saw a period of sustained growth.
With business confidence remaining low and many companies concerned about the outlook for investment, the FDF believes that this risks creating a vicious cycle of flatlining investment levels and low productivity.
“However, with a potential £14bn growth opportunity available to the sector through productivity gains, it’s possible to break out of this concerning trend,” the trade body said.
“Government can do this by making policy decisions that will drive the right conditions to attract the investment our sector needs. This could include not increasing the current rates that industry pays on taxes such as the Plastic Packaging Tax (PPT) and the Soft Drinks Industry Levy (SDIL).”