UK manufacturers are facing mounting pressures from rising costs, with many warning that planned investment could be scaled back or moved overseas if financial conditions do not improve.
A survey conducted by Make UK, the country’s leading manufacturing trade body, found that nearly nine in ten senior executives expect employment costs to increase this year, while two-thirds anticipate higher energy bills. The survey of 174 top industry leaders highlighted the growing concern that the cost base for British manufacturing is becoming unsustainable.
Almost two-thirds of respondents said rising business costs are among the biggest risks facing the sector in 2026. Make UK cautioned that these pressures are approaching a “tipping point,” beyond which companies may be forced to reduce investment or relocate operations abroad.
Confidence in the UK as a location for manufacturing investment remains fragile. Only around 43 percent of manufacturers consider Britain an attractive destination for investment, a sentiment echoed by a similar proportion of overseas-owned firms operating in the country. Against this backdrop, Make UK forecasts that the manufacturing sector could shrink by 0.5 percent this year.
Despite these challenges, the survey showed some cautious optimism. Nearly two-thirds of respondents believe that opportunities will outweigh risks over the coming year, and 57 percent still view the UK as a competitive place to manufacture. The government’s industrial strategy received some praise, with 63 percent saying it had improved confidence in future investment prospects.
However, fiscal uncertainty continues to weigh on decision-making. More than half of manufacturers said they would have reduced planned investment if recent business tax increases in the autumn budget had been enacted. Executives warned that further rises in taxes or employment costs could quickly undermine confidence.
Stephen Phipson, chief executive of Make UK, said the sector is sending a clear message to policymakers. “Despite the commitment to an industrial strategy, growth remains anaemic, and the warning lights are flashing red on the UK as a competitive place to manufacture and invest,” he said. “The government promised significant change – now is the time to deliver it.”
The warning from manufacturers comes amid broader signs of weakening business sentiment across the UK. A separate survey from accountancy firm BDO found overall optimism among businesses fell to its lowest level in almost five years by December 2025. The BDO sentiment index dropped to 90.01 from 93.45 in November, reflecting concerns over slowing demand, persistent cost pressures, and a softening jobs market.
Scott Knight, head of growth at BDO, said decisive action is needed. “Business costs are rising and turnover expectations are falling. Further interest rate cuts and a clear roadmap are critical if firms are to grow and invest,” he said.
While modest growth continues in the services sector, manufacturing activity remains subdued. The surveys together highlight a sector under pressure: cautious about opportunities but increasingly wary that rising costs and uncertainty could curtail investment just as manufacturers are expected to support economic growth.
