There is an opportunity to drive growth among UK food and drink manufacturers, as business confidence remains steady.
Between the second and third quarter of 2024, the FDF’s latest State of the Industry report found that confidence has stayed at -6%, with 80% of manufacturers planning to maintain or increase investment the coming year.
Manufacturers continue to primarily focus on growing UK sales (59%) and new product development (59%). The number of businesses considering digital transformation has also doubled in Q3.
Output (GVA) in food manufacturing is 2.1% smaller than in 2019 and 21.5% smaller in drink manufacturing, while the UK retail food sales are 6.0% lower, in volume terms.
The good news is that output is climbing - by 3.7% and 4.2% for food and drink manufacturing, respectively.
While businesses have expressed an interest in investing into R&D (40%), plant and machinery (44%), and skills and training (44%), the report found that more than half of manufacturers (53%) will be holding back for fear of regulatory impact.
A £14m untapped opportunity
The FDF has cautioned that stable regulatory guidance from government will be necessary to ensure positive momentum, with an estimated £14bn untapped growth opportunity for the UK currently.
Investment will be limited against a backdrop of new regulation and unfavourable business conditions, this includes the rise in National Insurance employer contribution charges, the Employment Rights Bill, Extended Producer Responsibility, the Deposit Return Scheme, EU imports checks, climate change, and geopolitical instability.
Inflationary pressure with rise
Annual food and non-alcoholic drink inflation inched up in October, reaching 1.9%, up from 1.8% the previous month and 1.3% in August. Although it remained lower than headline UK inflation, this was only due to higher household energy costs pushing UK inflation up to 2.3% - a rise from 1.7% the previous month.
Looking ahead, manufacturers are expecting costs to rise by 2.9% over the year to September 2025, as inflationary pressures gather pace.
Budget pros and cons
Concerns over the Budget have been aired by food and drink businesses, with nearly half of UK small businesses saying National Insurance increases will negatively impact them as they struggle with taxes and energy and property costs.
The FDF’s reports similar feelings among its members, with 71% of producers saying the Budget will have a negative impact on employee pay.
Labour shortages remained similar in Q3, with unfilled vacancies rising to 5.1% in Q3 2024, and 25% of businesses citing that the labour and skills gap will limit their investment.
On the other hand, a promise of a £300m investment into further education and £40m for the Growth and Skills Levy set out in the Budget has been welcomed, with 52% of food and drink manufacturers expecting this to have a positive impact.
Some other Budget measures have also been well received, including the hold of Corporation Tax at the 25% rate for the rest of Parliament (57% welcomed).
More than half (53%) of respondents were happy with the Mass Balance Accounting for the Plastic Packaging Tax. While 14% thought the £37m in extra funding to the Made Smart Innovation programme will prove useful.
Future outlook
Commenting, Balwinder Dhoot, director of industry growth and sustainability at the FDF said: “Investment is vital to the long-term health and resilience of our industry, as well as to countering inflation. While it’s positive to see businesses planning to boost their investment in UK production, this will have been impacted by raised costs in the budget.
“With businesses facing billions of pounds of additional tax and regulatory costs next year, we urge Government to double down on its growth mission. From removing barriers to trade, to reviewing regulation and planning rules, adopting a more collaborative relationship with business, Government can do more to boost business and consumer confidence, and drive investment.”
