The UK’s manufacturing sector faces an alarming risk of decline as soaring energy costs have led nearly 40% of businesses to curtail investments. A recent report from the Confederation of British Industry (CBI) and Energy UK highlights that high electricity and gas prices, significantly elevated since the onset of the Ukraine conflict, are undermining the competitiveness of British firms across various industries.
Energy Prices Outstrip Global Competitors
The report reveals that business electricity costs remain approximately 70% higher than they were prior to Russia’s invasion of Ukraine, while gas prices have surged by 60%. Alarmingly, almost 90% of surveyed companies reported a rise in their energy expenditures over the past five years, with many citing this as a direct contributor to their investment reductions.
Louise Hellem, the CBI’s chief economist, emphasised the severe financial strain on industrial sectors, particularly in the chemicals industry, where several closures have been reported. “This year is pivotal for the UK’s industrial strategy,” she stated, pointing out that the current landscape threatens to stifle economic growth and innovation.
Urgent Call for Regulatory Reform
The report stresses the necessity for a comprehensive review of outdated energy regulations. It argues that without effective price caps and necessary upgrades to the UK’s ageing energy infrastructure, many businesses could face job losses, production cuts, and potential offshoring. The CBI and Energy UK are advocating for a collaborative effort between government and industry to reassess the nation’s energy needs, particularly as the UK transitions towards its net-zero goals.
A newly formed taskforce comprising experts from both organisations will explore how reforming the energy market could lower prices and enhance the efficiency of energy networks. There is a growing consensus that current measures are insufficient, leaving the UK vulnerable to widespread deindustrialisation.
Impact on Trade and Economic Performance
The ramifications of high energy costs are evident in the UK’s trade performance. In 2025, the country reported its largest goods trade deficit on record, totalling £248.3 billion, a sharp increase from the previous year. This deficit was somewhat mitigated by a £192 billion surplus in the services sector, but the overall figures underscore a worrying trend for the manufacturing landscape.
To combat these challenges, the government has been urged to implement additional subsidies for industries at risk of contraction. Hellem’s remarks highlight the need for decisive action, as businesses struggle to invest in clean energy alternatives despite understanding their long-term advantages.
Government Initiatives and Industry Response
Energy minister Ed Miliband has attempted to alleviate some of the pressure on major energy consumers. Last year, the government announced plans to reduce electricity prices by up to £40 per megawatt hour for 7,000 heavy energy users, aiming to position the UK more favourably among its international peers. However, Dhara Vyas, head of Energy UK, cautioned that many businesses remain outside this protective framework and continue to grapple with exorbitant energy costs.
Vyas noted that while there has been progress in lowering domestic energy prices, the support available to industrial users is merely a temporary fix, funded by other consumers. She asserts that lowering energy costs across the board is essential for fostering a robust economic environment.
“Our goal is not only to reduce bills,” Vyas explained, “but also to fundamentally assess the energy market and existing regulations to enhance its effectiveness.”
Why it Matters
The findings of this report present a clarion call for urgent action to safeguard the UK’s manufacturing sector. As energy prices continue to rise, the future of numerous industries hangs in the balance. If left unaddressed, the current crisis could exacerbate trade deficits, lead to significant job losses, and inhibit the country’s transition to a sustainable energy future. The need for a cohesive strategy to reform energy pricing and infrastructure has never been more critical, as the UK faces the dual challenges of maintaining its industrial prowess and achieving ambitious climate targets.
