A new report has warned that high energy prices could cost the UK economy up to £85 billion, raising concerns about the impact on businesses, investment and long-term economic growth. The findings come at a time when many organisations are already managing rising operating costs and continued uncertainty across energy markets.
The report, published by manufacturing organisation Make UK, suggests that if industrial electricity prices continue to remain significantly higher than those in competing economies, businesses may delay investment, reduce production, consider relocating operations overseas, or, in some cases, close down facilities completely.
Why UK Energy Prices are a Concern
Energy prices have fallen considerably from the record highs seen during the energy crisis of 2022. However, many UK businesses continue to face electricity costs that are higher than those paid by competitors in countries such as France, Germany and the United States.
For energy-intensive industries, including manufacturing, food production, chemicals and heavy engineering, electricity is a major operating expense. Higher costs can affect profitability, reduce competitiveness and make it more difficult to justify investment in new equipment, technology or expansion.
The report argues that while businesses understand the importance of transitioning to a lower-carbon economy, they also need competitive energy prices to remain viable during that transition.
Why Manufacturers are Particularly Affected
For manufacturers, energy is often one of the largest operating costs. Businesses producing steel, chemicals, food and drink, ceramics, glass and other industrial products rely on large amounts of electricity to keep production running.
When UK electricity prices remain higher than those in competing countries, it becomes more difficult for manufacturers to compete on a global stage. Higher production costs can reduce profit margins, make UK-made products less competitive internationally and influence where businesses choose to invest in new facilities or expand existing operations.
The Make UK report warns that if these cost differences continue, some manufacturers may delay investment, reduce production capacity or shift parts of their operations overseas in order to remain competitive. Over time, this could have wider implications for employment, supply chains and the UK’s manufacturing sector.
The Wider Impact on UK Businesses
Although manufacturers are expected to be among the most affected, rising energy costs can have wider consequences across the economy.
When businesses face higher operating expenses, they often have fewer resources available for recruitment, training and investment. Increased costs may also be reflected in the prices charged to customers, contributing to broader inflationary pressures.
For organisations operating across multiple sites or with high electricity consumption, even relatively small increases in unit prices can have a significant impact on annual energy expenditure.
The report estimates that, if current challenges are not addressed, the cumulative effect on the UK economy could reach £85 billion through reduced productivity, lower investment and weaker economic growth.
Support Available for Energy-Intensive Industries
There are several government initiatives designed to reduce electricity costs for eligible businesses:
One of the most established is the Energy Intensive Industries (EII) Compensation Scheme, which helps eligible businesses recover some of the indirect electricity costs associated with government energy and climate policies. Sectors including steel, chemicals, paper, glass and ceramics may qualify, helping to reduce operating costs for businesses with particularly high electricity consumption.
The government has also introduced the British Industry Supercharger, which further reduces electricity network charges for eligible energy-intensive industries. More recently, plans for the British Industrial Competitiveness Scheme (BICS) were announced, with the aim of lowering electricity costs for thousands of manufacturing businesses from 2027 by reducing certain policy costs included in electricity bills.
While these initiatives provide valuable support, industry bodies argue that further measures may still be needed to close the gap between UK industrial electricity prices and those in many competing economies.
Calls for Action
Make UK is calling for measures that improve the UK’s competitiveness, including reducing industrial electricity costs and accelerating investment in energy infrastructure. The organisation also highlights the need for faster grid connections and greater certainty for businesses planning long-term investment.
These recommendations reflect a wider discussion taking place across the energy sector. Many industry groups have argued that alongside the transition to cleaner energy, businesses require affordable and reliable energy supplies to remain competitive internationally.
At the same time, policymakers continue to balance several priorities, including improving energy security, supporting economic growth and meeting long-term net zero targets.
The debate around UK energy prices is likely to continue as government, regulators and industry work to balance affordability, security of supply and decarbonisation.
Although energy markets have become more stable than during the height of the energy crisis, recent geopolitical events continue to demonstrate how quickly wholesale prices can change. For manufacturers in particular, maintaining competitiveness increasingly depends on understanding and managing energy costs effectively.
While government support schemes can help eligible businesses reduce some of these costs, many organisations are also reviewing procurement strategies, improving energy efficiency and investing in better energy monitoring to strengthen their resilience against future market volatility.
