Manufacturing Outlook 2026 Q1
UK manufacturing has started 2026 on a fragile footing. While output and investment have strengthened following a weak end to 2025, collapsing domestic orders and rising costs are weighing heavily on business confidence.
Q1 2026's edition of our quarterly Manufacturing Outlook report highlights the growing pressures facing manufacturers, including weakening demand, rising employment costs and the risk of further energy price shocks linked to geopolitical tensions in the Middle East.
Despite these challenges, the sector is still expected to return to modest growth in 2026.
- Domestic demand weakening: UK orders dropped sharply in the first quarter, suggesting a significant fall in domestic demand.
- Prices rising rapidly: Businesses are increasing prices at the fastest pace since 2023 as costs escalate.
- Confidence under pressure: Recruitment is lagging behind expectations and confidence has fallen for the third consecutive quarter.
- Output stabilising: Production growth has held steady following a slump at the end of 2025.
- Investment improving: Investment intentions continue to gradually increase.
- Growth forecast: Manufacturing is expected to grow by 0.9% in 2026, after contracting slightly in 2025.
Rising costs and global uncertainty
Manufacturers are continuing to face intense cost pressures, particularly from energy and employment costs. At the same time, escalating tensions in the Middle East – including potential disruption to shipping routes through the Strait of Hormuz – risk pushing oil prices higher and adding further strain to global supply chains.
For UK manufacturers, already facing some of the highest industrial energy costs among major economies, sustained increases in oil and gas prices could place additional pressure on margins and investment decisions.
A fragile outlook
While production edged up in the first quarter of 2026, the recovery remains modest and uncertain. Weak domestic demand and rising costs continue to pose significant risks to the sector.
*Survey data was collected prior to the current conflict in the Middle East
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.
“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.
“Now, more than ever, the Government must act swiftly to deliver its Industrial Strategy and associated measures, including the British Industrial Competitiveness Scheme. These steps are critical to narrowing the UK’s industrial energy cost gap and giving manufacturers the confidence they need to invest, grow, and compete in a volatile global environment.
Download the full report to explore the latest trends shaping UK manufacturing, including demand, investment, recruitment and the outlook for the sector in 2026.