Manufacturing shows resilience despite growing global uncertainty. The first quarter of 2026 began with signs of recovery in UK manufacturing. According to the UK Manufacturing Outlook Q1 2026 report, issued by Make UK, output, orders and employment all improved, suggesting the sector is stabilising after a prolonged period of weak demand.
Production volumes expanded, with the output balance rising from +13% to +21%, marking a full year of positive output balances in the survey. Total orders also strengthened, increasing from +11% to +21%, indicating that a growing share of manufacturers are reporting higher demand.
Despite these encouraging signals, the wider economic backdrop remains uncertain. Global instability, particularly tensions in the Middle East, threatens supply chains and energy markets. For manufacturers operating in globally connected supply networks, this creates a persistent gap between the desire for stability and the reality of continued volatility.
International markets are currently the main source of growth for UK manufacturers.
Export orders recorded a +18% balance, while domestic orders weakened sharply from +20% to +9%. As a result, export performance is continuing to outperform demand within the UK.
Europe remains the most important export market, with 65% of companies reporting positive demand conditions from the region. However, geopolitical tensions and shifting global trade policies remain key risks. For example, the United States has increased global baseline tariffs to 15%, creating uncertainty for exporters navigating international trade rules.
Manufacturers are increasingly exploring opportunities beyond the US market as a way to mitigate trade uncertainty and maintain order growth
Manufacturing output has returned to moderately strong levels, with the output balance reaching +21%, one of the highest readings in the past two years.
However, growth is uneven across the sector. Larger and mid-sized companies are contributing most to the improvement:
Companies with £10–£24m turnover report an output balance of +38%
Companies with £25m+ turnover report +30%
Smaller manufacturers with £0–9m turnover report just +4%
This suggests that while the overall sector is expanding, smaller manufacturers are experiencing much weaker momentum. Looking ahead, expectations are even stronger. Manufacturers predict an output balance of +35% over the next three months, potentially marking the strongest quarterly output growth since late 2021.
Employment activity has begun to recover, though cautiously. The balance for employment increased from +3% to +8%, signalling modest growth in recruitment.
There are currently 52,000 live vacancies in the UK manufacturing sector (up from 48,000 in the previous quarter), equivalent to 2.1 vacancies per 100 jobs, up from 2.0 in the previous quarter. This follows a longer-term trend in which vacancy levels have gradually declined from a peak of 4.0 in late 2022, but remain above the pre-pandemic average of 1.8.
Investment intentions remain one of the most encouraging indicators. The sector reports a +20% balance for investment intentions, marking three consecutive quarters at roughly this level.
While this suggests improved confidence in long-term growth, it remains unclear whether investment is primarily focused on capacity expansion or maintaining existing operations in the face of rising costs.
Manufacturers are raising prices again after a period of slowing price increases.
Price-setting behaviour has accelerated significantly:
UK prices balance: +31% (up from +14%)
Export prices balance: +34% (up from +18%)
However, higher prices have not translated into stronger profitability.
Margins have deteriorated:
UK margins balance: -6%
Export margins balance: +4%
This indicates that costs are rising faster than companies can pass them on to customers, putting pressure on profitability. Energy costs and supply chain disruptions are key contributors to this trend.
Overall, business confidence across UK manufacturing remains positive but has weakened slightly.
Headline confidence is currently 6.5 (down from 6.7), indicating that manufacturers still expect conditions to improve over the next 12 months.
Regional confidence varies across the UK:
South East & London: 8.0
Wales: 8.0
South West: 6.7
West Midlands: 6.7
North West: 6.6
North East: 5.3
Manufacturers tend to be more optimistic about their own business prospects than the wider UK economy, where confidence stands at 5.7.
While the overall outlook for UK manufacturing is cautiously positive, performance across individual subsectors is expected to vary significantly in 2026. Some industries are forecast to grow, while others face contraction due to rising costs, geopolitical tensions and shifting demand patterns.
Food & Drink remains the UK’s largest manufacturing subsector, accounting for 21.3% of total manufacturing gross value added, an increase of three percentage points since the previous report.
However, growth is expected to remain modest. Output is forecast to increase by just 0.2% in 2026, below the manufacturing average of 0.9%. Employment is expected to contract by -3.6%, compared with the sector average decline of -1.2%.
Despite these pressures, the rise in GVA share suggests the sector is achieving productivity gains rather than expanding output.
The electronics subsector now represents 7.8% of manufacturing GVA, up from 7.4% previously.
Output is forecast to decline slightly by -0.2% in 2026, partly due to rising semiconductor costs driven by competition for AI technologies. Employment is expected to contract by -2.7% as businesses respond to increasing labour costs. However, demand remains relatively strong, and output is expected to grow again in 2027.
Basic metals are forecast to experience one of the steepest declines in the sector.
Output is expected to fall by -8.4% in 2026, while employment is forecast to decrease by -4.1%. Energy prices, supply chain disruptions and geopolitical tensions around critical minerals are key drivers of this downturn.
Metal products, by contrast, show a slightly more positive outlook. Output is forecast to decline by -0.4%, but employment is expected to increase significantly by 11.5%, suggesting businesses anticipate stronger demand ahead.
The mechanical equipment sector, which produces machinery and industrial equipment, is forecast to grow modestly, with output increasing by 0.3% in 2026.
However, employment is expected to contract by -3.1%, reflecting rising employment costs and increasing automation across the sector.
The relatively weak growth outlook also signals caution around broader capital investment across the economy.
The automotive sector is expected to rebound strongly following production disruptions caused by the cyberattacks in 2025.
Output is forecast to grow by 4.1% in 2026, followed by 1.0% growth in 2027. However, employment is still expected to decline by -1.8% in 2026 and -0.3% in 2027. While public investment and industrial policy support the sector, manufacturers remain concerned about global competition and potential US tariff policies.
The chemicals sector continues to face structural challenges linked to high energy costs and export barriers. Output is forecast to decline by -1.1% in 2026, while employment is expected to fall by -2%. Despite these pressures, the outlook is more positive than the previous year, and output is expected to increase modestly in 2027.
Rubber and plastics are expected to see modest declines in 2026. Output is forecast to decrease by -0.5%, while employment is expected to fall sharply by -6.4%, reflecting rising labour costs and increased automation. However, both output and employment are expected to stabilise by 2027.
The pharmaceuticals/medical sector is expected to be one of the more resilient parts of UK manufacturing in 2026. Output is forecast to see no change (0.0%), which is an improvement on the previous report’s outlook. Employment is expected to decline by -0.3%, which is still better than the manufacturing average of -1.2%.
The report also notes that pharmaceuticals were included within the Government’s life sciences group rather than advanced manufacturing in the Industrial Strategy, which suggests policy support for the industry could strengthen over time.
Overall, the sector is performing better than wider manufacturing on both output and employment measures, and the report says it is in a stronger position than expected at the end of 2025.
The “Other Transport” subsector, which includes aerospace, defence, shipbuilding and rail, has increased its share of manufacturing GVA to 8.53%. Recent world events have benefited manufacturers supplying the aerospace and defence sectors in particular.
Output is forecast to grow by 1.2% in 2026, partly driven by increased defence spending commitments. Employment is expected to decline slightly by -0.7%, likely due to automation and rising labour costs.
After reading the report, it seems some subsectors continue to face long-term structural pressures.
Textiles: Output forecast to decline by -2.9% in 2026, while employment is expected to increase slightly by 0.9%.
Paper & Printing: Output forecast to decline by -0.7%, with employment falling by -7.1%, the steepest decline among manufacturing sectors.
These sectors are particularly sensitive to labour costs, regulatory changes and shifting demand patterns.
The broader UK economy experienced stagnation in late 2025, with GDP contracting by -0.1% in October and November before returning to 0.1% growth in December. Longer-term projections suggest moderate improvement:
UK GDP growth forecast: 1.3% by 2027
Manufacturing output forecast: 0.9% growth in 2026 and 2027
Globally, growth is expected to remain steady at around 3%, while inflation gradually eases to approximately 3.3%. However, manufacturers continue to face structural cost pressures, including rising labour costs, higher energy prices, and increased regulatory requirements.
One of the most significant risks facing the sector is the escalating conflict in the Middle East.
Oil prices have fluctuated between $100 and $118 per barrel, briefly reaching $119. At the same time, Qatar’s shutdown of the world’s largest LNG facility and uncertainty around the Strait of Hormuz are tightening global gas supplies.
UK manufacturers are already feeling the impact:
Gas prices have risen by more than 50%
Some firms report increases of more than 80%
These increases are contributing to higher electricity costs and rising input prices for materials such as petrochemicals, metals, and glass, and it will only be a matter of time until these higher input costs are passed on to the end consumer.
Despite the near-term risks, the long-term outlook for manufacturing remains cautiously optimistic. Government initiatives supporting advanced manufacturing, clean energy and zero-emission vehicles are helping strengthen the sector’s industrial base. Examples include:
£4bn Drive35 programme supporting zero-emission vehicle manufacturing
£450m Nissan investment in Sunderland
These initiatives, alongside plans to create 400,000 clean energy jobs by 2030, demonstrate growing recognition of manufacturing’s strategic importance to the UK economy.
Make UK’s Q1 2026 outlook paints a picture of a sector that is recovering but operating in a highly uncertain global environment.
Output and orders are growing, investment intentions remain strong, and export demand continues to support the sector. However, rising costs, geopolitical risks, and weakening domestic demand necessitate that manufacturers remain agile.
The resilience of UK manufacturing will depend on continued investment, supportive industrial policy, and the sector’s ability to navigate (yet again) global disruption while maintaining competitiveness.
Source and credit: All data referenced in this summary were based on the data insights from Make UK's Manufacturing Outlook Q1 2026 report.