UK manufacturing confidence weakens as rising costs hamper growth

16th Mar 2026 09:05

(Sharecast News) - A slump in domestic demand and soaring costs have clouded the outlook for UK manufacturers, with confidence and recruitment both down in the first quarter of 2026 despite a slight increase in production.

According to Make UK's latest Manufacturing Outlook report on Monday, the net balance for output (those reporting an increase minus those reporting a decrease) rose to +21% from +13% the preceding three months as the sector recovered slightly after a slump following the Autumn Budget.

Total orders rose to +21%, and are expected to reach +37% in the second quarter, though the balance between export and UK orders was less balanced, Make UK said, with the former dropping to +18% and the latter to +9%.

The survey pointed to 0.9% growth across the sector in 2026, following a 0.2% contraction in 2025, though the outlook remains "precarious".

Businesses are hiking prices at the fastest pace since 2023 with a net +31% increasing prices as costs continue to rise, which is likely to be worsened by the evolving energy crisis as a result of the continuing conflict in the Middle East. Disruptions to the key Strait of Hormuz could push oil prices - already at their highest since 2022 - even higher, and further rattle global supply chains, Make UK said.

"For a sector already facing some of the highest industrial energy costs among major economies, any sustained increase in oil and gas prices could add further pressure to business margins and input costs. Manufacturers are also closely monitoring potential knock-on impacts on shipping costs and delivery times, which could affect access to raw materials and components," the report said.

Meanwhile, labour increases - as a result of higher minimum wages and the passing of the Employment Rights Act announced in the Autumn Budget - are adding further pressure on manufacturers, with recruitment lagging behind expectations at a net balance of just +8%, and confidence fell for the third straight quarter.

"UK manufacturers have started 2026 on a fragile footing. While output and investment show some improvement after a challenging end to last year, rising costs and weakening domestic demand are creating real pressures for businesses," said Make UK's senior economist Fhaheen Khan.