Half of food and drink SMEs in the UK said business conditions deteriorated in the last three months of 2025, new findings suggest.
In a survey by local trade body the Food and Drink Federation (FDF), 50% of SMEs said trading conditions “got worse” in the period compared to the third quarter.
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UK-based small businesses, with ten to 49 employees, made up 16% of the survey’s respondents in the FDF’s latest State of the Industry report.
Medium-sized companies in the country, with 50 to 249 employees, meanwhile comprised 42% of the respondents. Large businesses, employing more than 250 people, accounted for 37%.
On average, production costs for all businesses rose 4.4% in the year to December. Selling prices were up 4.6%.
The survey shows however that SMEs still hold ambitions for 2026, with 40% reporting plans to increase sales abroad, which indicates “smaller firms are seeking to offset weak domestic demand with sales elsewhere”, the report said.
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By GlobalDataJust over two-fifths of SMEs also reported intentions to boost spend on plant and machinery in 2026, “which hints at the ambition to modernise and automate factory processes”, the FDF said.
When it comes to smaller companies, 66% said they intend to increase their spending on plant and machinery in 2026. Some 35% also reported plans to hike their budget for R&D, the report said.
Boosting sales in the UK topped a list of the “growth priorities” among all food and drinks companies, the survey said, a response of 69% of those surveyed.
Developing new products came in second, with 56% of respondents deeming NPD to be a priority.
Karen Betts, chief executive of The Food and Drink Federation (FDF), 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 actioned by government.”
For SMEs, costs increased on average by 5.3% in the fourth quarter, the report said. Mid-sized businesses saw costs go up 4.1%, while large businesses saw expenses rise 4.6%.
In the year ahead, UK food and drink businesses anticipate costs and prices, on average, to increase by 2.5% and 2.3% respectively.
Nearly three-quarters of respondents said they did not expect a change in production costs over the next 12 months, while 60% said they expected to see no change in prices.
The FDF’s “net confidence score”, which is the difference between the share of companies reporting better conditions and those reporting worsening conditions, reached -31% in the period, an improvement from the -60% recorded in the third quarter of 2025.
When looking ahead to the first quarter of this year, the FDF’s survey said just over half of businesses thought conditions would “remain stable in the coming months”.
Mid-size businesses reported a -17% “net outlook confidence score”, while larger companies had a score of 60%.
“Historically, larger businesses tend to signal turning points earlier than the rest of the sector. Their stabilisation may therefore indicate that broader conditions could begin to improve in the months ahead,” the report said.
