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Manufacturers are rising to the challenges of higher costs, tighter margins and weightier tax burdens, says the 2025 Manufacturing Report from business advisors MHA. Partner Richard Powell assesses its findings.
From the industrial heart of England to dynamic hubs like Milton Keynes, UK manufacturing continues to prove its resilience. Anchored by strength in automotive, aerospace and advanced engineering, the industry faces mounting pressure but remains focused on building future advantage through innovation, skills and strategic investment. According to MHA’s 2025 Manufacturing Report, based on responses from 1,000 business leaders, manufacturers across the country are grappling with higher costs, tighter margins and rising tax burdens.
The 2024 Autumn Budget resulted in employment-related taxes becoming the number one concern for over a third of businesses, with smaller and mid-sized firms feeling the strain most. In many cases, this has forced difficult decisions: 70% of surveyed firms have scaled back or postponed investments in equipment, digital systems and process upgrades. Yet despite these pressures, confidence remains. More than half of respondents expect to grow by 3% to 5% in the coming year, with another third forecasting stronger results. This is not misplaced optimism but a sign of modifying priorities, with investment being channelled into areas that will support long-term competitiveness.
A region leaning into its strengths Successful manufacturers are those leaning into their industrial advantages while adapting fast to new pressures. 43% of companies are broadening supply chains to improve resilience and reduce overseas risk. 42% are investing in IT and automation, with cyber security and cloud-based control systems high on the agenda. Over 30% plan to spend more than 6% of turnover on R&D. This kind of investment is not being made lightly. It reflects an industry that knows it cannot wait for perfect conditions to act.
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Building the workforce of tomorrow Manufacturing lacks technical and digital talent, which continues to restrict growth. While larger companies have begun turning to automation to fill gaps, smaller businesses are forming local partnerships with colleges and universities to train and retain skilled workers. Nearly half of manufacturers surveyed reported working with education providers to build the workforce of tomorrow. Government support has provided some structure, including a £100 million national skills package and a refreshed industrial strategy. Many companies, though, are already moving ahead with their own solutions: apprenticeships, in-house training, modular upskilling and early-career development are on the rise. However, concerns remain that policy favours scale over agility. Smaller businesses often struggle to access the same funding, incentives and planning support as larger players. This imbalance risks slowing progress at the very moment agility is most needed.
Energy and infrastructure: Two fronts of urgency Energy remains a major cost centre, particularly for high-usage industries. With electricity prices among the highest in Europe, businesses are taking action by upgrading to more efficient machinery, trialling technologies such as hydrogen, solar and thermal recovery, and shifting production or renegotiating energy supply terms. Some are counting on the British Industrial Competitiveness Scheme to ease pressure by 2027 but most are not willing to risk further uncertainty.
Infrastructure challenges are equally acute. Outside the core of London and other well-connected cities, businesses report transport delays, patchy digital access and slow planning processes that undermine competitiveness. While the government’s latest strategy acknowledges long-standing infrastructure challenges, the true test will lie in the effective delivery of tangible improvements, from streamlined planning processes and enhanced transport links to reliable digital connectivity.
A sector already in motion Manufacturing remains central to the UK’s economic resilience. The responses to our survey show that the industry is not standing still. Businesses are already adapting, investing in smart production, energy resilience and the skills they need. Clarity on tax, long-term commitment to skills and a level playing field on infrastructure and innovation would allow this progress to accelerate. The next year will bring further challenge but direction matters more than conditions. UK manufacturing is moving with pace, intent and purpose.
Find out more at mha.co.uk or call 01908 662255.
