UK Manufacturing Faces Risk Due to High Energy Costs

The UK manufacturing sector is teetering on the brink after soaring energy prices have pushed 40% of businesses to scale back their investment plans, according to a recent report by the Confederation of British Industry (CBI) and Energy UK. Business leaders are warning that without urgent intervention from policymakers, the UK risk losing its status as a major manufacturing hub.

The report highlights the severe financial strain on British firms across various sectors—from chemical producers to pubs and restaurants—due to energy price increases that remain far above pre-Ukraine levels. At 70% higher for electricity costs compared to before Russia’s invasion of Ukraine, business leaders are increasingly concerned about long-term economic repercussions such as job losses, production cuts, and offshoring.

A survey supporting the report reveals that nearly 90% of companies have seen their energy bills rise in the last five years, with one in three reducing investment significantly. Without a reduction in energy costs, experts predict an even more severe impact on industries, potentially triggering widespread deindustrialization and economic decline.

“We are at a critical juncture where our industrial strategy must pivot to address these pressing issues,” Louisa Hellem, CBI’s chief economist, emphasized. “The UK needs to lead by example in reducing energy prices for all businesses as we transition towards net-zero emissions.”

The report advocates for comprehensive reforms involving researchers and industry groups to evaluate the UK’s energy infrastructure and identify cost-saving measures that enhance system efficiency. It also calls for ministers to collaborate with business leaders on a broad review of existing regulations and pricing structures, positioning them to make more effective interventions.

Energy costs in the UK are nearly two-thirds higher than those in the International Energy Agency’s median countries and remain among the highest in the G7. The widening trade deficit due to goods trade alone was notably severe last year, with a £248.3 billion deficit—up from £217.8 billion the previous year.

Experts predict that businesses outside subsidized sectors will continue to face substantial energy price hurdles, contributing to economic growth limitations and hampering clean energy investments—a key policy goal for policymakers. Energy UK’s head, Dhara Vyas, echoed these concerns, urging immediate action on pricing policies rather than merely addressing domestic issues with a band-aid approach.

The report underscores the urgent need for holistic reforms that address not just cost reduction but also the structural inefficiencies in the energy market. “Our aim is to pave the way for a more resilient and effective regulatory framework,” Vyas stated, laying groundwork for transformative changes needed to safeguard the UK’s manufacturing industry against potential economic downfall.