A new report has warned of the impact of rising energy costs on the UK’s manufacturing sector — with potentially severe consequences for jobs, investment and competitiveness. According to a survey that underpins a recent industry report, nearly 90% of companies have seen their energy bills rise over the past five years, and without relief, the risks could increase dramatically.
But for manufacturers — who already operate on tight margins and face stiff international competition — this is more than an abstract statistic: it’s a strategic threat. In 2025, industrial energy prices remained among the highest in the developed world, with UK electricity prices around two-thirds above the median for comparable nations and significantly higher than in the US and Canada, squeezing competitiveness further.
Why Energy Costs Matter More to Manufacturers
Energy is one of the largest operational expenses for manufacturing organisations, especially for energy-intensive sectors such as metals, chemicals and food production. When electricity and gas bills rise, the impact goes far beyond the balance sheet.
Rising energy costs squeeze profit margins, reduce cash flow for investment, and make long-term planning difficult — particularly when energy contracts and prices are volatile. Many manufacturers simply cannot pass all these increased costs on to customers without risking lost orders.
Official figures show that electricity prices for non-domestic users surged sharply between 2021 and 2023, with industrial users paying nearly 75% more per kilowatt-hour than at the start of 2021, even as prices have since eased slightly. Gas prices over the same period more than doubled compared to pre-pandemic levels.
In the UK, industrial energy prices remain among the highest in the developed world, placing domestic firms at a disadvantage compared to international competitors. High prices also discourage investment in energy-saving technologies and renewable infrastructure — investments that could otherwise improve efficiency and resilience.
The Broader Economic Risks
According to business groups, persistent energy cost pressures could lead to job losses, production cuts, plant closures, and even offshoring of manufacturing operations — all of which threaten the UK’s industrial base. The same report found that around 40% of companies have already reduced investment because of high energy costs, highlighting the scale of the challenge.
This concern is backed by trends in industrial output and surveys of executive sentiment, which show that rising costs — including energy — are one of the biggest risk factors affecting investment decisions. Official data shows that output in energy-intensive manufacturing industries has fallen sharply — by around one-third since 2021, reaching its lowest level in decades.
Manufacturers have reported scaling back investment plans and, in some cases, weighing up moving some operations overseas to maintain competitiveness.
What Could Help Manufacturers Adapt
While the current picture is challenging, there are strategies both at the policy level and within individual businesses that could alleviate some of the strain:
Policy Support and Industry Collaboration
Industry bodies and trade associations have been calling on the government to pursue targeted energy cost reforms and relief measures for energy-intensive sectors. These proposals include exemptions from levies, targeted subsidies, and pricing mechanisms that help industrial users compete on a level playing field internationally.
Government schemes aimed at reducing network charges and providing industrial energy support — such as the British Industry Supercharger — are part of this picture. But industry leaders argue that more needs to be done to extend support beyond a limited number of heavy users.
Practical Measures for Manufacturers
At the business level, manufacturers can explore strategies to manage energy risk and reduce consumption, such as:
- Investing in energy efficiency upgrades and electrification where possible. Conducting structured energy audits can highlight inefficiencies in machinery, compressed air systems, lighting, insulation and process heating. Even incremental upgrades to motors, controls or production equipment can deliver measurable reductions in overall consumption.
- Optimising energy usage patterns to shift demand away from peak pricing periods. Improved monitoring and data analysis allow manufacturers to identify when energy use is highest and where adjustments can be made. Load management, better forecasting and reviewing production schedules can reduce exposure to higher time-of-use tariffs.
- Strengthening procurement and contract strategy. Reviewing purchasing structures — whether fixed, flexible or blended — ensures contracts align with operational needs and risk appetite. A more strategic procurement approach can improve price certainty and reduce exposure to sudden market volatility.
- Exploring direct renewable generation or power purchase agreements (PPAs). On-site solar installations or structured long-term supply agreements can reduce reliance on volatile wholesale markets while improving cost predictability.
Developing a robust energy strategy is no longer optional — for manufacturers it’s a vital part of staying competitive.
The latest findings highlight a stark reality: unless energy costs are addressed, the future of UK manufacturing could be jeopardised. With nearly all companies reporting higher bills and many reconsidering investment or production plans, the sector stands at a crossroads. Manufacturers, policymakers and advisors must work together to find solutions that support profitability, competitiveness and long-term resilience.
At BP Consulting, we help manufacturers navigate these challenges by aligning operational strategy with energy management and cost reduction — turning a potential risk into an opportunity for smarter, more sustainable growth.
