Delivery now defines UK manufacturing outlook

SPEAKING AT the Southern Manufacturing and Electronics show in February, Make UK CEO Stephen Phipson offered a candid assessment of the sector: its strengths, its persistent challenges, and the pressing need for government to move from words to action.

The past year saw the manufacturing sector face a number of headwinds: persistently elevated energy prices, the ongoing skills deficit, supply chain pressures, the increasing threat of cyber attack, and the growing complexity of the net zero transition. Above all, the relationship with the UK’s single largest export market, the United States, continued to be overshadowed by tariff uncertainty.

And yet, against that backdrop, there was still cause for optimism. Renewables manufacturing created around 50,000 new jobs last year, making it one of the highest-growth areas in the sector. Meanwhile, a joint Make UK and PwC survey found that 63% of manufacturers were optimistic about their prospects for 2026, particularly those in renewables, commercial aerospace and other high-tech sectors. 

The weight of the numbers

Manufacturing’s economic contribution remains substantial. Phipson pointed to £220bn of gross value added last year, placing the country 11th in the global rankings. The sector accounts for approximately 42% of UK exports and employs 2.6 million people, while average salaries run around 10% above the wider economy.

He also emphasised that many of those jobs exist outside of the UK’s major cities, providing high-value, skilled employment for communities across the country. "These jobs are outside city centres, helping people remain in local areas while working in high-value industries," he said.

The Industrial Strategy: Promise and pressure

Make UK was closely involved in the development of the Government’s Industrial Strategy, particularly its advanced manufacturing pillar. Phipson spotlighted two features that set the new strategy apart. Firstly, the strategy sets out a ten-year plan; important in a sector where the average investment cycle runs to around seven years. Businesses need long-term certainty, and a short-term policy horizon does not give them sufficient confidence to commit capital. Second, it has been placed on a statutory footing, which should make it harder for future governments to change direction without significant consequences.

But approval of the plan’s structure does not translate into complacency about delivery. On this point, Phipson was unambiguous: "The Industrial Strategy contains many of the right priorities, but 2026 must be the year of delivery. Manufacturers have seen enough good documents sit on shelves. What matters now is implementation."

Energy: A competitive crisis

Energy remains the most acute structural challenge facing manufacturers. Industrial electricity prices in the UK remain among the highest in the world. "The comparison with Germany and the United States is stark, and for energy-intensive manufacturers that creates a major competitive disadvantage," he noted.

For sectors such as steel, where electricity can make up around 70% of cost of sales, this issue is fundamental. Some relief exists through the Government’s Supercharger scheme, which removes certain policy costs for energy-intensive businesses, but this currently applies to only a relatively small number of companies.

The Industrial Strategy includes proposals to bring UK industrial energy prices closer to European levels for a broader range of manufacturers. While the official position currently points towards 2027, there is strong pressure to bring action forward, Phipson reported. He noted that a lot of discussion at present is focused on defining eligibility and which manufacturers should benefit.

Additionally, the Government is accelerating its renewable energy plan, targeting roughly 95% low-carbon electricity generation by 2030.

However, responding to the question on whether the renewables plan could help solve the cost problem, Phipson was straightforward: "Not in the short term, in my view. It may increase manufacturing opportunity and investment, but it is unlikely on its own to bring down industrial energy costs quickly. […]Grid constraints, policy levies and the need for dependable baseload generation remain important issues. The overall system still needs balance, including gas and, over time, nuclear capacity."

Bridging the skills gap

There are currently around 48,000 vacancies in UK manufacturing, many of them unfilled for over a year. These are often technician-level roles such as toolmakers, welders and robotic automation service engineers.

The decline in engineering apprenticeships is a particular concern. Since the introduction of the apprenticeship levy, the number of level 3 technician apprentices has fallen sharply. 

The demographic dimension makes this urgency still greater. The average age across UK manufacturing is around 52, meaning a substantial portion of the current workforce will retire within the next five years. The replacement pipeline is not yet strong enough to absorb that transition. "Skills England has been created to address some of these issues, but progress is still too slow,” Phipson stated.

Capital, digitisation and AI opportunity

The third key issue is access to finance, which the Make UK chief executive characterised as "a persistent weakness in UK manufacturing for many years".

A point often raised internationally is that the UK is strong at invention and innovation, but weaker at providing the long-term capital needed to grow those innovations into major manufacturing businesses.

The industrial strategy includes measures involving the British Business Bank to improve longer-term financing. "That is welcome," said Phipson. "But again, the sector now needs delivery rather than policy language alone."

On digitalisation, the Made Smarter programme was cited as a success story for SMEs - helping manufacturers adopt practical tools such as sensors, improved data capture and operational monitoring, with measurable output improvements. Additional government funding is set to extend the programme nationally. 

Reflecting global trends, when it comes to digital adoption, AI is moving firmly up the manufacturing agenda, with Phipson identifying three broad application areas: shopfloor uses including predictive maintenance and robotic support during production; back-office automation covering tasks such as invoicing and payroll; and deployment in regulated environments - pharmaceuticals and aerospace among them - where AI is being used to reduce certification timelines. For smaller manufacturers, the immediate opportunity lies in practical adoption and productivity gain rather than large-scale experimentation, he added.

Cyber security in manufacturing

Nevertheless, Phipson cautioned that as factories become more automated and connected, cyber security is becoming ever more important.

"One lesson from recent attacks is that manufacturers should assume they will be targeted and plan accordingly. The issue is not only about prevention. It is also about recovery. Businesses need clear plans for how they will recover quickly after an attack," he emphasised. 

Discussing potential vulnerabilities, he observed that around 70% of cyber security risk comes from human behaviour rather than technology itself, such as staff clicking unsafe links or connecting insecure devices.

Manufacturing is especially exposed since shopfloor systems are often less protected than other business areas. Production engineers may connect automation devices without applying strong cyber security controls. Phipson added that "in some cases, devices are still running on default passwords, which creates clear vulnerabilities and raises the risk of IP theft". 

Looking ahead

Despite the challenges facing the UK manufacturing sector, Phipson closed on a note of measured confidence. Investment is recovering, and the Industrial Strategy, if delivered, addresses the right issues.

"A large part of my role is to keep pressing government to turn those commitments into real, practical policy changes,” he told delegates. “If those foundations are addressed, it could be a very positive period for UK manufacturing."

For more information: 

www.makeuk.org

Tel: 0808 168 5874

SIDEBAR

Iran crisis raises further energy security concerns

Following Southern Manufacturing and Electronics, the Iran crisis has further heightened energy security headwinds.

In March, Make UK warned that blockages of oil and ferrous supplies in the Strait of Hormuz could be the last straw for some businesses. 

The trade organisation is pressing the Government to move quickly to secure energy prices, and to progress the Rosebank and Jackdaw North Sea oil and gas projects - to help safeguard energy security and mitigate rising energy costs

"Manufacturers are calling for the Government to act quickly to progress with the Rosebank and Jackdaw developments to mitigate energy costs and energy security because of the conflict in the Middle East. Historically high industrial energy costs are already preventing growth in UK manufacturing," said Phipson. 

"The recent developments in the Middle East add huge pressures to the sector and risk accelerating de-industrialisation. Whilst manufacturers are leading the way in renewable energy we must ensure the sector survives in the medium term. Ensuring the UK has access to its own energy reserves is now vital."