As the UK enters 2026, the manufacturing sector is not short of ambition. However, it may be fair to say that it is short of is confidence. After several years of economic and geopolitical volatility, policy change and rising operating costs, many manufacturers remain cautious about committing capital to the UK in the long-term.
The Autumn Budget acknowledged the importance of stability and investment in manufacturing, but its immediate impact is already fading. What matters now is whether 2026 becomes the year the UK creates an environment that manufacturers genuinely trust. Because in manufacturing, confidence is not a sentiment. It is the currency of investment.
Competitiveness is the foundation of confidence
Global competition for industrial investment has intensified. Several of the UK’s partners across Europe have moved faster in recent years, attracting foreign direct investment and higher-value, knowledge-intensive jobs. Ireland is the clearest example: its nominal GDP per capita is now more than double that of the UK, reflecting the scale of multinational investment it has secured. At the same time, Poland’s rapidly growing economy and rising FDI inflows are strengthening its appeal for higher-value, knowledge-intensive investment. Together, these trends underline how fast-growing European economies continue to narrow the gap.
This matters because manufacturers will only commit to long-term UK investment if the fundamentals stack up, including productivity, cost competitiveness, infrastructure quality and workforce capability. In 2025, official data showed UK output per hour only about 1% higher than a year earlier, highlighting how weak productivity growth remains. Without progress on these, confidence will remain fragile, regardless of individual incentives or short-term support.
Confidence is being tested on the factory floor
Confidence across the manufacturing sector is under real pressure, as high and volatile energy prices, rising labour costs and ongoing supply chain pressures continue to shape investment decisions. While recent policy measures have sought to encourage capital spending and innovation including the Autumn Budget 2025’s introduction of a 40% first-year capital allowance for qualifying investment and the continuation of R&D tax relief schemes, many businesses still lack a clear sense of the long-term environment they are investing into.
Because manufacturing operates on long horizons, with investment decisions stretching over decades, short-term reassurance is not enough. What businesses need instead is predictable policy, credible energy frameworks and a visible commitment to improving the conditions in which industry operates.
Energy and policy stability are credibility signals
Nowhere is this clearer than in energy-linked sectors. In oil and gas, the absence of a clear, durable strategy for the UK Continental Shelf continues to cloud long-term investment decisions, particularly when compared with regions such as the Norwegian shelf, where policy frameworks are more predictable and commercially consistent.
Despite repeated commitments to energy security and industrial resilience, a growing disconnect between words and deeds is leaving large parts of the UK energy industry viewed as a less attractive investment than it should be. Windfall taxes and ongoing fiscal uncertainty are undermining confidence in a sector that supports around 120,000 direct and indirect jobs, while doing little to strengthen domestic energy security. Norway again offers a sharp contrast, pairing an ambitious green agenda with a clear recognition that oil and gas remain strategically and economically vital.
Looking across manufacturing more broadly, we see that industrial energy costs are also a major structural disadvantage. In 2025, UK industrial electricity prices remained significantly higher than those paid by competitors in Europe and the US, reinforcing manufacturers’ calls for lower policy levies, more predictable pricing and faster grid investment. Short-term relief can help cash flow, but it does not create confidence.
The Government plans to expand electricity network charge discounts for energy-intensive industries from 2026, alongside proposals to cut industrial power costs under the British Industrial Competitiveness Scheme, are steps in that direction. But manufacturers will be watching closely. In 2026, they will be looking for evidence that the UK is serious about building a coherent industrial energy system that supports competitiveness, security of supply and the transition to net zero.
Place matters because confidence is local
Despite repeated commitments to regional growth, economic imbalances remain deeply entrenched, and confidence continues to be built or lost locally. Many manufacturing-intensive regions still struggle to attract sustained investment, not because of a lack of capability, but because the surrounding conditions are not yet strong enough.
Transport reliability, logistics efficiency, planning processes and local skills pipelines all influence where manufacturers choose to expand. Rising rail costs, congested roads and deteriorating infrastructure send the wrong signals. Growth zones will only succeed in 2026 if they move beyond labels and start delivering tangible improvements that make regions easier places to operate and invest.
Skills will make or break the next investment cycle
As with infrastructure and energy, people are central to competitiveness, yet manufacturing continues to face a persistent skills shortage, with around 55,000 vacancies unfilled across the sector in 2025.This is not simply a labour market issue. It is an investment issue. Skills shortages limit automation, slow digital adoption and weaken the case for placing advanced manufacturing in the UK.
If 2026 is to mark a turning point, workforce strategy must shift from short-term fixes to long-term capability building, aligning education, apprenticeships and reskilling far more closely with the needs of modern industry.
What 2026 needs to represent
The real opportunity in 2026 isn’t another round of initiatives or announcements. It’s showing manufacturers that there is a clear direction of travel, and that it will stick.
After years of volatility, businesses are no longer looking for reassurance. They want to see whether the basics are finally being put on a more stable footing – energy costs, infrastructure, skills and the overall cost of operating in the UK. Get that right, and confidence can return. And when confidence returns, investment follows. Get it wrong, and 2026 risks becoming another year where ambition remains high but capital continues to wait or look elsewhere.
Author: James Pearce, Partner at Kearney
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