UK Manufacturing Sector Begins 2026 on Fragile Footing with Deteriorating Outlook
The UK manufacturing industry has started the year on a fragile footing, with its economic position expected to worsen due to the ongoing Middle East conflict, according to the sector's leading industry body. A new report from Make UK highlights that the sector is projected to expand by just under one per cent in 2026, marking a modest recovery following a 0.2 per cent contraction in 2025.
Precarious Prospects and Domestic Demand Concerns
The future prospects for UK manufacturing are described as precarious, with the report noting a sharp decline in domestic activity in recent months that has raised alarms about a potential collapse in domestic demand. Fhaheen Khan, senior economist at Make UK, stated: "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."
Mixed Signals from Recent Data
Recent economic indicators present a mixed picture for the sector. The latest Purchasing Managers Index (PMI) for manufacturing recorded a reading of 51.7 in February, which is above the 50-figure threshold that indicates neutrality in output. This figure represents the highest level since late 2024, with manufacturing output now growing for four consecutive months.
This growth has been partly driven by a rise in export orders, particularly from China, the EU, and the Middle East, where intakes of new work have increased at the fastest rate in four and a half years. However, this positive data is overshadowed by ongoing declines in employment and purchasing stocks. Analysts from S&P Global have noted that the decline in employment is the mildest recorded over the past 16 months, offering a slight silver lining.
Urgent Calls for Government Action on Energy Costs
Make UK, which represents thousands of manufacturers across the country, has issued an urgent call for government intervention to address rising energy costs. The industry body is urging the approval of North Sea drilling projects, such as Rosebank and Jackdaw, to mitigate the impact of soaring oil prices linked to the conflict in the Middle East. Stephen Phipson, chief executive of Make UK, emphasized: "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."
However, Energy Secretary Ed Miliband has rejected these calls, stating in a recent interview: "Some people want to go around and pretend that if we only we draw more [oil and gas from the North Sea,] prices would go down. That is totally false."
Economic Risks and Rising Oil Prices
The economic risks are significant, with analysis from Oxford Economics suggesting that the UK could be thrust into a recession if the price of a barrel of oil climbs to $140 and remains at that elevated level until at least May. Oil prices have already surged, closing above $100 for the first time since 2022 on Thursday and finishing the week above $103.
Fhaheen Khan cautioned further: "With UK industrial energy costs among the highest in the developed world, any sustained increase in oil and gas prices could quickly push up input costs, squeezing margins and limiting investment." This warning underscores the delicate balance the sector faces as it navigates geopolitical tensions and economic pressures in the coming months.
