Business costs near tipping point as UK manufacturers warn investment is at risk

Rising costs are pushing UK manufacturers dangerously close to an investment tipping point, with businesses warning that planned spending could be cancelled or moved overseas unless pressures ease.

A new survey by Make UK, the manufacturing trade body, found that almost nine in ten industry leaders expect employment costs to rise this year, while two thirds anticipate higher energy bills. The findings underline mounting concern that the cost base for British manufacturing is becoming unsustainable.

The survey of 174 senior manufacturing executives revealed that 65 per cent see rising business costs as one of the biggest risks facing the sector in 2026. Make UK warned these pressures are now “threatening to reach a tipping point”, beyond which firms may be forced to scale back investment or relocate activity abroad.

Confidence in the UK as a place to invest remains fragile. Just over four in ten manufacturers believe Britain is an attractive destination for investment, a view shared by a similar proportion of overseas-owned firms operating in the UK. Against this backdrop, Make UK forecasts the manufacturing sector will shrink by 0.5 per cent this year.

Despite these concerns, the survey also revealed pockets of cautious optimism. Nearly two thirds of respondents said they believe opportunities will outweigh risks over the year ahead, while 57 per cent still regard the UK as a competitive place to manufacture.

Business leaders pointed to the government’s industrial strategy as a positive influence, with 63 per cent saying it had improved confidence about future investment prospects. However, enthusiasm is being tempered by fiscal uncertainty.

The most recent autumn budget drew particular criticism, with more than half of manufacturers saying they would have reduced planned investment had additional business tax rises been announced. Executives warned that further increases in taxation or employment costs could quickly undermine confidence.

Stephen Phipson, chief executive of Make UK, said the sector was sending a clear warning to government.

“Despite the commitment to an industrial strategy, growth remains anaemic and the warning lights are now flashing red on the UK as a competitive place to manufacture and invest,” he said. “The government promised significant change – now is the time to deliver it.”

The concerns come as broader business sentiment across the UK economy weakens. A separate survey from accountancy firm BDO found that overall optimism among businesses fell to its lowest level in almost five years at the end of 2025.

BDO’s sentiment index dropped from 93.45 to 90.01 in December, the weakest reading since January 2021, reflecting fears of a slowing jobs market, weak demand and persistent cost pressures. Confidence declined across both manufacturing and services firms.

“Business costs are rising and turnover expectations are falling,” said Scott Knight, head of growth at BDO. “Decisive action, such as further interest rate cuts and a clear roadmap of what lies ahead, is critical if firms are to grow and invest.”

While BDO’s output index edged higher, indicating modest growth, this was driven entirely by the services sector. Manufacturing activity continued to lag, with employment prospects also softening slightly.

Together, the surveys paint a picture of an industry under strain: hopeful that policy direction is improving, but increasingly concerned that rising costs and uncertainty could choke off investment just as manufacturers are being asked to drive economic growth.

Jamie Young

Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.

When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.