Over the last decade, manufacturers across the UK have operated in one of the most challenging and volatile economic environments in recent memory.
They have weathered the financial crisis, Brexit and a global pandemic, yet the challenging conditions show very little sign of easing. Economic growth remains weak, inflation has proved stickier than many hoped, international trade is becoming more fragmented and geopolitical tensions are adding fresh uncertainty to already fragile markets. However, against that backdrop, MHA’s latest Manufacturing Report captures a sector that continues to plan ahead and invest despite a materially more unstable global environment.
July’s PMI figures reinforce that picture. The sector is still growing, but momentum appears more fragile, with the index falling to 51.9. The recent uplift looks to have been driven in part by customers stockpiling ahead of expected price rises and disruption linked to conflict in the Middle East. Whether the Burnham bounce will have a significant impact on the industry remains to be seen.
Higher borrowing costs are adding further pressure to an already difficult operating environment. Financing is materially more expensive than during the long era of ultra-low interest rates, making expansion, capital spending and working-capital management more difficult. For manufacturers, this creates a difficult balancing act: demand in some markets remains soft, financing growth is costlier and uncertainty encourages caution, even though delaying investment risks weakening competitiveness.
Inflation is also proving slower to fade than many businesses had hoped. While headline pressures have eased from their peak, manufacturers continue to face elevated costs across energy, transport, imported inputs and wages, making it harder to plan with confidence and protect margins. Further pressures are emerging from US steel tariffs, the forthcoming Carbon Border Adjustment Mechanism and a new Prime Minister, all pointing to more change and less stability.
Growth continues for now
Despite these challenges, there is little sign of retreat. Manufacturers continue to invest in technology, productivity and workforce capability because they recognise that resilience and long-term competitiveness depend on it. Employment growth is another positive signal, although it should be treated with some caution. Some firms suggest recent hiring reflects stronger short-term order books rather than evidence of sustained confidence.
Manufacturers are not standing still. Almost all businesses surveyed expect growth over the next 12 months. Some 81% anticipate growth above 3%, while 26% expect growth exceeding 6%, up from 22% in 2025. With inflation running at around 3%, these figures point to a sector that remains optimistic despite continued economic uncertainty.
That optimism is not without reason, but nor is it without challenge. Manufacturers continue to face a broad range of operational pressures, with no single issue dominating. Supply chain disruption is now the sector’s biggest operational risk, cited by 35% of firms, up from 31% last year. Cybersecurity follows closely at 34%, while 33% identify energy costs as a major concern.
Skills shortages and technological change are also shaping decision-making, cited by 32% and 31% of respondents respectively. By contrast, tax increases and payroll costs, which were a primary concern in last year’s findings, have become a less immediate challenge, falling nine percentage points to 26%.
A tale of different regions
The findings reveal significant regional variation. The North West stands out with the highest average growth expectations at around 6%, despite concerns around cybersecurity, supply chain disruption and energy costs. The region’s diverse and advanced manufacturing base, strong export orientation and concentration of anchor industries may help explain this confidence. The North East and South West also recorded high levels of optimism, supported by investment in advanced manufacturing, renewable energy and high-value sectors including aerospace, marine technology and clean energy.
Manufacturers in different parts of the UK also face distinct pressures depending on their skills base, infrastructure, supply chains and levels of digital adoption. In Northern Ireland, 41% of businesses identify supply chain pressures as one of their top three challenges, alongside 42% in the West Midlands, 38% in Yorkshire and the Humber and 35% in the East Midlands.
Cybersecurity concerns are most pronounced in the North West, where 46% of businesses rank it as a leading challenge. Similar concerns are reported by 40% of manufacturers in Scotland. These differences underline the extent to which manufacturers’ experiences are shaped by local economic conditions and industrial strengths.
Manufacturers, whether in Makerfield or Motherwell, are by their nature an optimistic bunch. Cynics might argue they have to be, given the scale of challenges faced over recent decades. Yet that optimism remains grounded in reality. Our findings show a sector that is continuing to invest, innovate and adapt despite a wide range of pressures.
Against this backdrop, the policy environment remains critical. The UK Government’s long-awaited Industrial Strategy was introduced with significant expectation, yet many manufacturers do not yet see evidence of the long-term framework needed to support investment, manage risk and deliver sustainable growth. There is a growing sense that a more regional approach is required, with regional mayors playing a stronger role in directing support, funding and skills programmes towards the specific needs and strengths of their local manufacturing economies.
The sector has clear ambition, but turning short-term growth into sustained recovery will depend on stronger demand, lower cost pressure and a more stable policy environment. The challenge for policymakers and industry alike will be to find that balance, ensuring that manufacturers are equipped not just to navigate uncertainty, but to thrive within it.
Author: Chris Barlow, Head of Manufacturing and Engineering, MHA.
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