Make UK warns rising oil prices above $100 and energy costs from Middle East conflict threaten sector’s modest growth outlook
Make UK is warning over rising costs(Image: PA)
UK manufacturing has begun the year on a “fragile footing,” with its economic position likely to deteriorate due to the Middle East conflict, the sector’s industry body has cautioned.
A new report from Make UK said the sector is projected to expand by just under one per cent in 2026, a modest recovery following a 0.2 per cent contraction in 2025.
However, the manufacturing sector’s future prospects were characterised as “precarious,” with the report highlighting a sharp decline in UK activity over recent months that had sparked concerns domestic demand had “collapsed”.
Fhaheen Khan, senior economist at Make UK said: “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.”
The latest Purchasing Managers Index (PMI) for manufacturing demonstrated a reading of 51.7 in February, above the 50-figure threshold for neutrality in output,as reported by City AM.
It represented the highest figure recorded since late 2024, with manufacturing output now growing in each of the past four months.
This came as large and medium-sized firms were bolstered by a rise in export orders, with intakes of new work from China, the EU and the Middle East increasing at the fastest rate in four and a half years. However, the data was overshadowed by ongoing falls in employment and purchasing stocks.
Nevertheless, S&P Global analysts noted a decline in employment was the mildest recorded over the past 16 months.
The industry body, which represents thousands of manufacturers, has urged the government to approve North Sea drilling or risk a surge in energy costs amid rising oil prices from the Iran war.
Stephen Phipson, chief executive of Make UK, said: “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.”
Energy secretary Ed Miliband has rejected this, telling Sky News on Sunday Morning: “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.”
Analysis from Oxford Economics has indicated the UK could be thrust into a recession should the price of a barrel of oil climb to $140, and remain at the elevated price until at least May.
Oil closed above $100 for the first time since 2022 on Thursday and finished the week above $103.
Khan cautioned: “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.”