UK Manufacturing Sector Faces Existential Threat from Soaring Energy Costs
A comprehensive new report jointly published by the Confederation of British Industry (CBI) and Energy UK has issued a stark warning about the future of British manufacturing. The analysis reveals that approximately 40% of UK businesses have been forced to slash investment due to persistently elevated energy prices, creating what industry leaders describe as a pivotal moment for the nation's industrial strategy.
Persistent Price Pressures Undermining Competitiveness
The report paints a concerning picture of an energy market where business electricity costs remain 70% higher than pre-Ukraine invasion levels, with gas prices similarly elevated at 60% above historical norms. This sustained price pressure has created what the report terms "a brake on ambitions for economic growth" that threatens the UK's status as a major manufacturing center.
"You can see it already in the chemicals industry, which has seen several closures," noted Louise Hellem, the CBI's chief economist, highlighting the immediate consequences of the energy crisis. "This acts as a brake on ambitions for economic growth. Also, businesses cannot invest in switching to clean energy – even though they know the long-term benefits of doing so – which again undermines one of the government's key policies."
Survey Reveals Widespread Impact Across Business Sectors
Underpinning the report's findings is a survey showing that almost 90% of firms have experienced rising energy bills over the past five years. This financial pressure has forced four in ten businesses to reduce investment, with the report warning that without intervention, "the risk of job losses, production cuts, plant closures and offshoring will increase."
The situation is particularly acute for medium-sized businesses, where UK electricity prices are approximately double the European Union median. While nondomestic gas prices align with EU levels, they remain substantially higher than those in North American markets like the United States and Canada, creating a significant competitive disadvantage for British manufacturers.
Structural Problems in UK Energy Market
The report identifies several structural issues contributing to the crisis. British businesses across sectors – from chemical producers to hospitality venues like pubs and restaurants – are being undermined by what the report describes as a failure to cap prices effectively and modernize the UK's aging gas and electricity networks.
Dhara Vyas, head of Energy UK, expressed concern that current government support measures represent "a sticking plaster" solution. "Lowering prices for all businesses is fundamental to the UK's growth story," she emphasized. "But our aim will not be just about how to reduce bills. It will be the first of its kind to take a fundamental look at the energy market and the regulations to see how it can become more effective."
Comparative International Disadvantages
The UK currently suffers from some of the most expensive industrial energy prices in the developed world, according to the report. British industrial energy costs are almost two-thirds above the median of International Energy Agency countries and represent the highest among G7 member nations.
This competitive disadvantage is already manifesting in economic data. Figures covering 2025 show the UK's trade in goods slumped to its worst performance on record, with Britain reporting a £248.3 billion deficit for goods – £30.5 billion more than the previous year. While a £192 billion surplus in services partially offset this gap, the widening trade imbalance highlights the manufacturing sector's struggles.
Calls for Comprehensive Regulatory Review
The CBI and Energy UK are urging ministers to collaborate with industry on a far-reaching review of outdated energy regulations governing the sale and supply of energy. The organizations argue that such reforms are essential to spur investment, boost economic growth, and support the transition to net zero emissions.
A dedicated taskforce comprising researchers from both organizations and industry groups will examine how regulatory changes could reduce prices and improve the efficiency of gas and electricity networks. The initiative aims to demonstrate that previous efforts to improve the UK's energy system "have not gone far enough, leaving the UK in danger of widespread deindustrialisation."
Government Response and Industry Concerns
Energy minister Ed Miliband has implemented measures to protect some of the UK's largest energy consumers, including cutting electricity prices by up to £40 per megawatt hour for approximately 7,000 "heavy users." The government described this initiative as an effort to "move the UK from being an outlier to right in the middle of the pack."
However, industry representatives remain concerned that thousands of businesses outside this protected category continue to face prohibitive energy costs. While acknowledging progress on reducing domestic energy expenses, Energy UK's Dhara Vyas noted that assistance for industrial users is being funded by other bill payers, creating additional market distortions.
The report emerges against a backdrop of increasing pressure from manufacturing lobby groups. Last year, Make UK called for millions of pounds in additional subsidies to prevent industry contraction, highlighting the sector's growing vulnerability to energy market volatility.
