U.K. Autumn Budget: Consumer goods companies caught between a rock and a hard place

Consumer goods companies, from the food industry to electronics and white goods, are caught in an unenviable position in the wake of the U.K. Autumn Budget announcements. The Budget raised taxes and payroll costs for all employers, but it will be the makers of consumer goods that really feel the squeeze because they are trapped between rising input costs and retailers who will be putting pressure on manufacturers to reduce prices or accept lower margins.

Retailers recently wrote to the Chancellor warning they faced additional costs of up to £7 billion a year as a result of the announced increases to the National Minimum Wage, National Living Wage, and employer National Insurance Contributions (NICs). They acknowledged that suppliers were in the same boat. Manufacturers have not put a price tag on the Budget measures, but their response can be gleaned from the S&P Global U.K. Manufacturing Purchasing Managers’ Index, which fell to a nine-month low in November and placed manufacturing in downturn territory. Survey respondents said some investment decisions were being put on hold after the Budget announcements on October 30.

AlixPartners’ 2025 Global Consumer Outlook, meanwhile, finds that more than 85% of U.K. consumers will be spending the same or less next year. It appears that economic uncertainty and worries over inflation are driving consumers towards private-label brands and discount channels, with the occasional premium purchase as a treat. This is hollowing out demand for some mainstream brands.

Against this backdrop of consumer caution, the Budget measures have put significant pressure on consumer goods manufacturers and will require them to carefully manage their margins, costs, and pricing strategies to remain competitive. 

The ripple effects of a stronger US dollar

Another factor that consumer goods makers will be closely monitoring is the strength of the U.S. dollar, because many of the raw materials and commodities they use including wheat, cocoa, coffee and oil, are priced in the currency. When the US dollar strengthens, the cost of these inputs for U.K.-based manufacturers increases, squeezing margins. So far this year, the fall in crude oil prices has mitigated the impact of a strong dollar on input producer price inflation. Nevertheless, the exposure of manufacturers to currency risk needs to be incorporated into their strategic planning. 

Investment and M&A activity might also be affected by the greenback’s strength, sometimes in opposing ways. On the one hand, the strong dollar will depress the U.K. and European earnings of U.S.-based multinationals when translated back into dollars, which could make these markets less attractive for investment compared to the U.S. Add to this the likelihood of higher U.S. tariffs on foreign goods and the case for channelling investment into U.S. operations, rather than into the U.K. or Europe, grows stronger. 

On the other hand, U.K.-based consumer goods companies might become more attractive acquisition targets for U.S.-based multinationals and private equity firms if the strength of the dollar continues. Private equity has plenty of dry powder to deploy, and in this economic environment there will be no shortage of manufacturing firms in need of a capital injection to drive innovation, manage supply-chain resilience, and increase productivity. Private equity investors could therefore play a role in consolidating the market by acquiring and integrating smaller or underperforming players.

There will also be opportunities to capture value from divestitures. As some larger consumer goods conglomerates look to divest non-core or underperforming business units, private equity firms may see opportunities to acquire those assets at attractive valuations.

Steps to take to protect margins

Despite the headwinds faced by consumer goods manufacturers, there are several ways in which they can manage their costs and margins and emerge stronger as a result. 

For companies that have not already done so, now is the time to implement productivity programmes to take costs out of operations. Options here include automation to make supply chains more resilient. By diversifying sourcing and improving demand forecasting, manufacturers can avoid stock issues and better manage risks and costs.

Secondly, manufacturers should adopt a holistic approach to margin management. Rather than just looking at price or cost in isolation, manufacturers need to take a comprehensive view of their margins. This involves understanding what features and benefits consumers truly value and are willing to pay for, then optimising their product offerings, pricing, and marketing strategies accordingly. Clear communication of product benefits, emphasis on unique selling points, and exceptional customer service will all enhance customer perception and appreciation.

Trade promotion spending, in particular, needs to be reviewed to ensure it is contributing to sales and profit growth, rather than just eroding margins. 

Developing a strong omnichannel strategy, including both physical and online sales channels, can help manufacturers better manage their costs and pricing, while reducing the need for heavy discounts to shift stock. Strong data and analytics capabilities are essential here to help manufacturers understand how consumers shop across both physical stores and online channels. Just as manufacturers compete for prime shelf placement in physical retail stores, they also need to focus on optimising their online visibility and placement on retailer websites. This may involve paid placements alongside search engine optimisation strategies.

As we noted earlier, price negotiations between retailers and their suppliers are about to get a lot tougher. The best way manufacturers can prepare for these difficult conversations is to have robust data at their fingertips to justify price increases. The Autumn Budget may have shrunk their room for manoeuvre, but with the right strategies, consumer goods manufacturers can work to maintain their margins and competitiveness.