Audit, tax, advisory and consulting firm, Crowe, provides a snapshot of the UK manufacturing market with its latest Manufacturing Outlook Report.

The UK manufacturing sector continues to face significant challenges, ranging from supply chain attacks to high energy and employment costs, but two thirds of manufacturers remain on a positive growth trajectory, highlighting the sector’s resilience. Crowe’s analysis – conducted in partnership with the Confederation of British Metalforming (CBM) –­ looks at what is driving this resilience, and how businesses are responding to challenges. Read the full report here.

Key findings include:

  •  82% of manufacturers are using their own resources and internal reserves to fund growth (reflecting caution in lending environment and a desire for greater control) – up 30% from 2024
  • 66% expect their business to grow in the next 12 months
  • 54% see ‘uncertain return on investment’ as the primary barrier to investing in innovation or R&D
  • 41% see ‘cost volatility’ as their biggest supply chain concern
  • 56% are ‘actively implementing’ a Net Zero strategy
  •  39% believe the ‘high cost of green technologies’ is the biggest challenge in reducing carbon emissions

Resilience and Defence spending drive cautious optimism

Resilience remains the key growth buzzword for 2026. Cybersecurity risks in supply chains have created anxiety and uncertainty, with the long-term impact of the Jaguar Land Rover cyberattack yet to fully play out, while an over-reliance on trading partners is now creating tension due to the geopolitical climate.

As Defence spending surges, the manufacturing sector must capitalise. But with 82% of businesses funding growth using their internal reserves, unlocking the sector’s potential relies on attracting more external investment. Cautious optimism remains, however, with 66% of manufacturing businesses surveyed expecting to grow in the next 12 months.

Skills and innovation

A persistent and widening skills gap hampers the sector, with 64% of respondents citing a lack of qualified applicants as their biggest recruitment challenge. This underscores the need for training programmes and apprenticeships across the country, with businesses needing to work closely with their chosen provider to ensure training remains rigorous and relevant.

While innovation has been highlighted as a focal point for growth by the government, manufacturers remain cautious of investing heavily, with nearly half of all SME manufacturers not submitting an R&D claim in the past year. The dominant barrier is financial uncertainty: 54% cite an uncertain return on investment as the main reason for holding back on innovation, with fears that new measures from Finance Bill 2025 will only make matters worse.

Manufacturers are consistently having to rely on themselves for investment. 82% are funding growth through internal reserves, a huge 30% increase from the year prior. This reliance on self-financing is unsustainable, and the UK government must ensure it makes the country a more attractive place to invest than the rest of the world, otherwise skilled labour shortages and a stalling innovation environment will continue to hamper the sector in the coming years.

Energy, supply chains and Net Zero

The crippling costs of energy continue to be a big issue for manufacturers of all sizes, threatening competitiveness and incentivising foreign owned companies to invest elsewhere.

Businesses clearly understand the long-term competitiveness and regulatory importance of decarbonisation, with 70% reporting that they are actively implementing or planning a Net Zero strategy (or are already Net Zero). However, nearly 40% of businesses are finding the high cost of green technologies as their biggest implementation challenge.

Supply chain resilience also continues to dominate strategic thinking, with 41% of businesses most concerned with cost volatility, reflecting ongoing fluctuations in materials, logistics and energy markets. While geopolitical uncertainty was the second largest concern, it has sparked a shift to onshoring, with 98% of SMEs considering bringing parts of their supply chain back to the UK.

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 employment opportunities and job security for the UK workforce.

Johnathan Dudley, Partner and Head of Manufacturing at Crowe, comments: “The time is now for UK manufacturing to reassert itself on the global stage. Through 2025, rising energy and employment costs, new cybersecurity risks in supply chains, and a shortage of skilled workers have continued to hamper our businesses. In spite of this, the sector has remained resilient, with businesses expecting growth and continuing to invest.

The obvious need, which will unlock the sector’s true potential, is tangible government support. It is time for the UK to deliver on the Industrial Strategy and make manufacturing the crown jewel of the economy once more.

The government’s call for defence ‘reinvestment’ is a welcome sign of encouragement. Manufacturers now have a patriotic duty to play their part in revitalising growth. While the Autumn budget sadly did nothing to address the relevant challenges, the sector will watch the Spring Statement with a close eye, hopeful that the Chancellor supports our businesses and makes UK manufacturing a global player again.”

Stuart Weekes, Partner and Head of Innovation Taxes at Crowe, comments: “The two key factors for the growth of the manufacturing sector in the future will be the development of its workforce and innovation. To that end, we hope to see continued government support through the nurturing of apprenticeships across the UK, and the removal of barriers to innovation.

Businesses are finding themselves too financially uncertain to invest in R&D, and the fact that 82% of businesses are funding themselves through internal reserves tells its own story.

A stronger, more investor-friendly economy should see more external investment in our manufacturers, growing not only the sector but the economy as a whole. When manufacturing businesses aren’t financially afraid to invest in innovation, then we will once more see the return of the sector to the forefront of the global economy.”