With UK manufacturing businesses grappling with significant challenges ranging from supply chain disruptions and skills shortages to high operational costs, Crowe’s analysis – conducted in partnership with the Confederation of British Metalforming (CBM) – looks at how businesses are responding to market challenges. Read the full report here.
Key Findings on Funding, Innovation, and Turnover
Key findings include:
• 56% of manufacturers are relying on their own cash resources to fund their business (up 4% on 2024)
• 21% of respondents have been discouraged from innovating due to R&D tax credit changes
• 16% expect turnover to reduce in the next 12 months (up 11% from 2024)
• 74% have taken steps to address the rise in National Insurance (NI)
• 66% invested in Net Zero (down 4% from 2024)
• 52% have adopted Artificial Intelligence
Supply Chain, Skills Shortage, and Operational Costs Impact
Our analysis shows that supply chain disruption impacting the availability and cost of raw materials, a skills shortage stemming from an ageing workforce, and high operational costs including energy, labour and regulatory compliance are placing immense pressure on manufacturing output, profitability and competitiveness.
Geopolitical tensions, the ongoing ‘trade war’, the commodity and energy crises and automotive transitions are also having an increased impact on the sector.
Nonetheless, the research shows that manufacturers are seeking to address key challenges – from skills shortages to Net Zero – with a resilient and innovative approach, as the UK’s focus turns to reshoring, modernising and decarbonising.
Despite this, the responses indicate that there is continued reluctance for businesses to invest due to the economic challenges, increased costs and geopolitical uncertainty that persists.
For the first time in a generation, there is a clear need for the UK to seek greater protection and bolster national security by relying more on domestic sources and supply chains; whether in relation to military equipment, domestic raw materials, energy, technology, medical or food production.
Cautious Growth Amid Policy Changes
Domestic policy changes announced in recent Budgets are also having an effect on growth. Our analysis shows that the April 2025 increase in Employer’s NIC has already led 74% of respondents to make changes. Of those who took action, just 42% felt that they could plan to increase prices, while 32% are either reducing headcount or looking to cut back on recruitment.
With the potential for tax rises and tariff implications lingering, manufacturers are being forced to proceed with caution.
Addressing Skills Shortages and Innovation Challenges
The ongoing manufacturing skills shortage has prompted initiatives by the government, employers and specialist training agencies, including upcoming reforms of the apprenticeship scheme. The 2025 survey shows a 50/50 split for the very first time, in response to the yes/no question ‘does the apprenticeship scheme work for your business?’ Sustainable growth of the manufacturing sector relies on companies employing well trained employees and being empowered to invest in innovation and experimentation.
Successive past surveys have analysed the proportion of respondents making research and development claims. While a healthy majority have not allowed changes in the R&D tax credit process to discourage their investment in innovation, it is concerning that as many as 21% of respondents admitted they had indeed been deterred from innovating because of these rules.
Energy Costs, Supply Chain Issues, and Net Zero Initiatives
More than half (59%) of respondents identified the cost of energy as affecting the competitiveness of their products and services. Rising energy costs have been associated with interest in the transition to Net Zero, however this year’s survey suggests Net Zero initiatives may be less of a priority, possibly due to more pressing concerns elsewhere such as spiralling payroll costs. The majority of respondents were not aware of the business support available to de-carbonise.
Within a context of tariff negotiations and the growing practice of ‘dumping’ materials imported from nations under high tariffs, over half of respondents stated that they would consider re-shoring if they sourced abroad. 57% of manufacturers surveyed cited supply chain issues and 54% said that they had been adversely affected by the availability and pricing of raw materials.
Reshoring to the UK can enable businesses to better control their carbon emissions, provided that essential skilled employees, components and raw materials can be sourced and supplied competitively. With the UK Carbon Border Adjustment Mechanism (CBAM) on the horizon, the measurement of Net Zero initiatives will become increasingly important. Knock-on impacts could see improved lead times and stock holding, as well as providing job prospects and security for the UK workforce.
Expert Opinions on UK Manufacturing Outlook
Johnathan Dudley, Partner and Head of Manufacturing at Crowe, comments: “The UK’s manufacturing sector is facing significant challenges, from supply chain disruption to energy costs and skills shortages, and is now also grappling with uncertainty over global tariffs and yet another raw material supply crisis.
However, despite all this, the sector continues to demonstrate foresight, innovation and resilience. The government appears to be listening to the sector and there is a key drive to reshore, modernise and decarbonise UK manufacturing.
To enable the sector to play its crucial role in securing a more robust future for the UK, and to address the issues that persist, a dedicated Minister for Manufacturing will be essential.
Crowe’s ‘Art of Thrival’ process helps businesses to focus on doubling the power of resilience and opportunity, while identifying and limiting the impact of exposures and risks. Businesses will need to focus on what they can influence and change, and remain agile to navigate the uncertain world.”
Stephen Morley, CBM President, comments: “It’s no surprise in the survey results that companies are not optimistic about the future and it’s very concerning that over half are relying on internal cash reserves for investment, indicating limited access to external finance.
It is however encouraging to see those surveyed are moving toward technological adoption, resilience building, and strategic reshoring. Support from government policy, particularly through the upcoming Industrial Strategy whitepaper, will be critical in translating this momentum into long term competitiveness and growth.”
