UK manufacturing: Sector poised for growth in 2025 despite global and economic pressures

Mike Thornton, national head of manufacturing and partner at RSM UK, comments: “The manufacturing sector and the UK more broadly continue to lag behind other economies for investment and productivity – both were highlighted as critical issues in the government’s Industrial Strategy green paper and improving productivity is the cornerstone to improve living standards. In recent months, we’ve seen the headline PMI for manufacturing wobble on a slight downward trend, coinciding with some post-Autumn Budget concerns. In our recent Investment Monitor survey (conducted with Make UK), manufacturers told us that demand remains the number one factor that drives investment.

“Despite these challenges, there are reasons for optimism heading into 2025, with government’s sugar rush of spending set to accelerate economic growth to almost 2%, as outlined in our latest Quarterly Economic Outlook. This increase in growth, albeit small, should help to stimulate investment. However, there are still some financial obstacles for manufacturers, in particular employment costs and increases to employers’ National Insurance contributions (NICs) announced in the Autumn Budget. Additionally, Trump’s proposed tariffs changes in the US may add further economic pressures. But these cost challenges will also act as a stimulus for manufacturers, who, in comparison to many sectors, have relatively easy and obvious routes for investment. Improving productivity will therefore be crucial to mitigate these increased costs and shield customers from steep price rises. We therefore expect increased investment driven by increased demand and a need to improve productivity.”

He added: “Unfortunately the green paper was short on detail for advanced manufacturing and the steps required to deliver certainty and stability for businesses through investment and incentivisation. But, digitalisation and decarbonisation are both global megatrends, so it was no surprise to see digital and clean energy identified as growth-driving sectors. Indeed we expect manufacturers to focus their investment in 2025 around digital technologies as they increasingly look to improve productivity. While the sugar rush of government spending won’t last forever, accelerated investment in 2025 for UK manufacturing should leave the sector in a more durable state heading into 2026.”