The UK manufacturing sector’s recovery over the past year has seen it grow almost twice as fast as the rest of the economy. That’s despite major trade and tariff pressures too.

This turnaround is the result of many different factors. Defence and aerospace are powerful structural growth drivers, due to the Defence Investment Plan, additional military spending commitments and record order books across the sector. Aerospace manufacturers are also benefitting from unprecedented visibility of future demand and a sustained pipeline of work that extends well beyond the current economic cycle.

Inventory building has likely helped give the sector another temporary boost. Manufacturers accelerated orders during spring 2026 ahead of potential disruption linked to the Iran conflict. However, even as this stockpiling effect has faded, growth has continued, indicating that underlying demand remains healthy.

The recovery has been broadened further by the restart of automotive production (following the disruption caused by the Jaguar Land Rover cyber attack in 2025), stronger European vehicle demand and resilient activity in food and beverage markets. Rising investment in energy infrastructure, power networks, renewables and nuclear projects are also creating new opportunities across industrial supply chains.

Against this backdrop of improving manufacturing output, three subsectors stand out: computers and electronics, pharmaceuticals and electrical equipment. Together they represent some of the strongest structural growth themes within the wider sector.

Three manufacturing subsectors driving growth

One of the most dynamic areas of UK manufacturing, computers and electronics has benefitted by the convergence of AI investment, semiconductor demand and defence-related electronics spending. Today, growth is being driven more by long-term technology trends than by traditional industrial cycles.

Global semiconductor demand is projected to grow by more than 25% in 2026, as AI use and the data centres needed to support it continues to grow. Commissioned data centre capacity is expected to rise significantly through 2026 and 2027, with data centre spend representing a substantial share of global industrial capital expenditure.

The UK is benefitting through specialist engineering and technology supply chains rather than large-scale semiconductor fabrication. For example, Renishaw has raised full-year guidance in 2026 on accelerating demand from chipmakers and defence customers. The company now expects a growing share of revenues to come from semiconductors and electronics equipment.

Supply bottlenecks and memory chip shortages could create challenges in the second half of 2026. But the underlying drivers look durable, making computers and electronics one of the most attractive manufacturing subsectors over the medium term.

Pharmaceutical manufacturing provides a different but equally important contribution to manufacturing growth. Unlike other industrial sectors, pharmaceuticals benefits from structural healthcare demand, long product cycles and significant research and development investment. Taken together, this makes the sector less dependent on the broader economic environment.

AstraZeneca and GSK are leading this growth. Both have continued to invest in UK operations while delivering strong commercial performance. AstraZeneca announced a £300m investment programme that includes expanding its Cambridge headquarters and building a new laboratory facility in Macclesfield. The company reported robust revenue and profit growth, supported by strong performance in oncology and rare disease treatments.

The significance extends beyond individual company results. AstraZeneca's investment shows that there is a lot of confidence in UK pharmaceutical manufacturing capacity and underlines how important advanced manufacturing facilities are for the sector's future growth. The company's confidence in the strength of its product portfolio and long-term demand outlook led it to set an ambitious target of hitting $80bn revenue by 2030.

Pharmaceuticals offers an important counterbalance to more cyclical sectors. Demand is underpinned by healthcare requirements rather than consumer spending or capital investment cycles. This gives a degree of resilience during periods of economic uncertainty. While future performance will depend on the success of product pipelines and regulatory developments, the sector appears well positioned to keep contributing to UK manufacturing growth through 2026 and beyond.

Sitting at the intersection of AI infrastructure, grid modernisation, electrification and the wider energy transition, electrical equipment has arguably enjoyed the strongest structural tailwinds of all three subsectors.

Once again, it is unprecedented data centre investment that is driving demand. Hyperscaler spending is projected to exceed $700bn during 2026 and is also supporting growth across power distribution, cooling systems, electrical installations and related equipment. This is creating big opportunities for manufacturers across these supply chains.

Beyond AI, electricity network investment is growing too. Grid spending in particular is expected to continue expanding, supported by electrification, rising power demand and the need to modernise infrastructure over a potentially decade-long investment cycle.

Manufacturers are already seeing the benefit. Orders for electrical equipment relating to data centre construction, power infrastructure upgrades and broader electrification trends have been accelerating since 2025. Capital goods exposed to AI spending are likely to further support growth through the rest of 2026.

While data centre bottlenecks may create some constraints, the wider outlook is favourable. Multiple overlapping sources of demand mean electrical equipment should stay attractive over both the short and long term.

UK manufacturing outlook for 2026 and 2027

The outlook for UK manufacturing is positive, despite the fact that growth is likely to keep becoming more differentiated across subsectors. The temporary boost from stockpiling activity has already begun to fade, so it is unlikely that the headline PMI will reach the highs seen during spring 2026. However, structural demand drivers remain firmly in place.

Defence and aerospace investment, AI infrastructure spending, pharmaceutical innovation and power infrastructure investment should continue to support manufacturing activity through the rest of 2026 and into 2027. The themes that are driving growth in computers and electronics, pharmaceuticals and electrical equipment all look likely to extend well beyond the current business cycle and provide a foundation for continued growth.

The principal risks are still energy costs, supply chain disruption and geopolitical uncertainty. High industrial energy prices are going to keep putting pressure on manufacturers, while any further escalation of Middle East tensions could create additional cost inflation and supply chain disruption.

Overall, the UK manufacturing sector’s recovery is increasingly being driven by long-term investment themes rather than short-term cyclical factors. And, for the foreseeable future at least, growth will remain concentrated in sectors linked to security, healthcare, technology, power and infrastructure.

To discuss what these trends could mean for your manufacturing business, please contact Emily Sawicz or your usual RSM contact.

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