Rising costs are pushing British manufacturers dangerously close to an investment tipping point. Businesses are warning that planned spending could be canceled or shifted offshore if pressure doesn’t ease.
A new survey by Make UK, the manufacturing trade body, found that almost nine in 10 industry leaders expect employment costs to rise this year, while two thirds expect energy bills to rise. The findings underline growing concerns that the cost base for UK manufacturing is no longer sustainable.
The survey of 174 senior manufacturing executives found that 65 percent see rising business costs as one of the biggest risks facing the industry in 2026. Make UK warned that these pressures are now “at risk of reaching a tipping point”, beyond which companies could be forced to reduce investment or move their activities overseas.
Confidence in the UK as an investment location remains fragile. Just over four in ten manufacturers believe the UK is an attractive investment destination, with a similar view shared by a similar proportion of foreign-owned companies operating in the UK. Against this backdrop, Make UK predicts that the manufacturing sector will shrink by 0.5 percent this year.
Despite these concerns, the survey also found evidence of cautious optimism. Almost two thirds of respondents said they believe the opportunities will outweigh the risks in the coming year, while 57 percent still see the UK as a competitive manufacturing location.
Business leaders pointed to the government’s industrial strategy as a positive influence: 63 percent said it had boosted confidence in future investment prospects. However, enthusiasm is dampened by fiscal uncertainty.
The most recent autumn budget was particularly criticized: more than half of the manufacturers stated that they would have reduced their planned investments if additional trade tax increases had been announced. Executives warned that further tax or employment cost increases could quickly erode confidence.
Stephen Phipson, chief executive of Make UK, said the sector was sending a clear warning to the government.
“Despite a commitment to an industrial strategy, growth remains poor and the warning signs for the UK as a competitive manufacturing and investment location are now red,” he said. “The government has promised significant change – now is the time to deliver.”
The fears come as general business sentiment weakens across the UK economy. A separate survey by accounting firm BDO found that overall business optimism fell to its lowest level in almost five years at the end of 2025.
BDO’s sentiment index fell to 90.01 from 93.45 in December, its weakest reading since January 2021, reflecting fears about a slowing labor market, weak demand and continued cost pressures. Confidence fell among both manufacturing companies and service companies.
“The cost of doing business is rising and revenue expectations are falling,” said Scott Knight, head of growth at BDO. “Decisive measures such as further interest rate cuts and a clear roadmap for the future are crucial if companies want to grow and invest.”
Although the BDO production index increased slightly, suggesting moderate growth, this was entirely due to the services sector. Manufacturing activity continued to lag and the employment outlook also deteriorated slightly.
Taken together, the surveys paint a picture of an industry under pressure: there is hope that policy direction is improving, but there is growing concern that rising costs and uncertainty could stifle investment at a time when manufacturers are being asked to drive economic growth.
