The UK manufacturing sector stands at a pivotal crossroads. As the nation’s industrial backbone, manufacturers are navigating a rapidly evolving investment landscape shaped by economic headwinds, shifting global dynamics and the pace of innovation. The latest Make UK/RSM Investment Monitor, alongside recent macroeconomic analysis, reveals a sector adapting with resilience—but the next 12 months will demand bold choices and strategic agility.

Economic outlook: what lies ahead

Looking forward, the UK economy is expected to grow modestly, with GDP forecasts hovering around 1% for the coming year.

Inflation, though easing from its recent peaks, remains above the Bank of England’s target, and interest rates are likely to stay elevated for the remainder of 2025. This environment will continue to shape manufacturers’ investment decisions in several ways:

• Monetary Policy: with interest rates expected to remain higher for longer, the cost of capital will be a critical consideration. Manufacturers will need to prioritise investments with clear productivity or efficiency gains, and many may defer or phase large-scale capital projects until borrowing costs ease.
• Inflation: persistent inflation, particularly in energy and input costs, will squeeze margins and force a sharper focus on cost control, supply chain resilience and operational efficiency.
• Fiscal Uncertainty: the upcoming Autumn Budget and potential tax rises add another layer of complexity, with over half of manufacturers already adjusting their investment strategies in response to recent fiscal changes.

Manufacturing investment priorities: skills, technology and resilience

For the first time, investment in people has overtaken capital as the top priority for UK manufacturers. This reflects both the acute skills shortages facing the sector and the recognition that digital transformation and automation can only deliver results with a workforce equipped to harness new technologies. Upskilling and reskilling will be essential, especially as manufacturers seek to unlock the full value of investments in plant, machinery and digital tools.

Despite these efforts, investment intensity—the proportion of turnover invested in plant and machinery—has dropped to its lowest level since 2017. This signals a potential slowdown in the sector’s capacity to modernise and compete globally, even as R&D investment remains relatively stable.

Strengthening supply chains: lessons from disruption

The past year has underscored the vulnerability of complex supply chains. The recent cyber attack on Jaguar Land Rover (JLR), which disrupted operations for over 5000 businesses, is a stark reminder of the interconnected risks facing UK manufacturing. As digital threats grow and geopolitical tensions persist, manufacturers will need to invest in both cyber resilience and supply chain diversification. Building stronger relationships with domestic suppliers, investing in digital supply chain tools and scenario planning for future shocks will be critical.

How UK manufacturing compares globally and what we can learn

While UK manufacturers are adapting, the sector continues to lag behind many OECD peers in investment intensity and productivity growth. Countries such as Germany, the US and South Korea have outperformed the UK by maintaining stable industrial strategies, investing heavily in advanced manufacturing and supporting innovation ecosystems. The UK’s relatively high energy costs, regulatory uncertainty and skills shortages have contributed to this gap.

To close it, UK manufacturers will need to focus on:

• Adopting best practices from global leaders in automation, digitalisation and workforce development.
• Focussing on key industries and capitalising on world class academic institutions.
• Leveraging trade opportunities as global demand recovers, particularly in high-value sectors like clean energy, evs, and biotech.
• Building resilience against external shocks, from cyber threats to supply chain disruptions.

The road ahead: strategic choices for manufacturers in 2026

The next 12 months will be defined by uncertainty—but also by opportunity. Manufacturers who succeed will be those who:

• Invest in people and technology to drive productivity and adapt to changing market demands.
• Strengthen supply chain resilience through digital tools, diversification and robust risk management.
• Monitor global trends and adopt strategies that have delivered results for international competitors.
• Stay agile in the face of shifting monetary and fiscal policy, making investment decisions that balance risk and reward.

Manufacturing sector ready to move forward

UK manufacturers are resilient and ready to invest in the future, but the path forward will require strategic focus, operational discipline and a willingness to learn from global best practice. With the right choices, the sector can drive growth, create high-quality jobs and ensure the UK remains a global leader in advanced manufacturing.

To discuss how these trends could affect your organisation’s investment planning, please contact Emily Sawicz or your usual RSM contact.