Introduction
UK manufacturing just hit a rough patch. Order books dropped sharply in October, with the CBI’s latest survey showing a total orders balance of minus 38, down from minus 28 in September. High interest rates, Budget uncertainty, and rising costs are squeezing manufacturers harder than expected. If you’re wondering whether UK industry can bounce back quickly, the short answer is: don’t hold your breath.
Manufacturing Order Books Take a Hit
The Confederation of British Industry’s industrial trends survey revealed that manufacturing order books fell to minus 38 in October, marking a significant decline from the previous month. Business confidence took a nosedive too, with expectations dropping to minus 19 from minus six in July.
Even more concerning? The jobs balance for the next three months worsened, signalling potential trouble ahead for the UK labour market. When manufacturers stop hiring, it’s rarely a good sign.
Why Are Manufacturers So Pessimistic?
Several factors are creating a perfect storm for UK industry:
Interest Rates and Budget Anxiety
High interest rates continue to bite, making borrowing expensive and investment decisions risky. Add pre-Budget jitters into the mix, and you’ve got manufacturers hitting pause on expansion plans.
The Export Problem
Earlier this month, S&P Global’s purchasing managers’ index (PMI) pointed to a serious “dearth” in export orders. UK manufacturers aren’t just struggling domestically—they’re losing ground internationally too.
Unexpected Disruptions
A cyber attack on Jaguar Land Rover didn’t just hurt the car giant. Smaller suppliers that depend on JLR for business got caught in the crossfire, amplifying the sector’s struggles.
What Economists Are Saying
Analysts at Pantheon Macroeconomics weren’t mincing words. Elliott Jordan-Doak, a senior UK economist at the firm, said they “fail to see a rapid turnaround materialising any time soon.”
There’s a silver lining, though. Actual manufacturing output has outperformed these gloomy surveys for most of the year. Pessimism might have bottomed out earlier in 2025, according to both CBI and PMI data.
Official stats back up some of this concern. The Office for National Statistics reported that production output fell 0.3% in the three months to August 2025.
The Cost Crunch
It’s not just demand that’s the problem—it’s margins. Several factors are squeezing profitability:
National Insurance Hikes: The Chancellor’s £25bn increase to employers’ national insurance contributions is adding serious strain to already tight margins.
Energy Prices: High energy costs continue to hurt competitiveness. While UK manufacturers actually pay less than their US counterparts (who face prices four times higher), energy expenses still squeeze margins and make it harder to compete globally.
What’s Next?
S&P Global is set to release October’s flash PMI data on Friday morning. Economists are forecasting a marginal 0.1-point improvement for manufacturing, with services expected to show stronger gains.
But here’s the reality: one month of slightly better data won’t erase the structural challenges facing UK manufacturers. Until interest rates come down, energy costs normalise, and policy uncertainty clears, expect more of the same.
The question isn’t whether manufacturing will recover—it’s how long manufacturers can hold on while waiting for conditions to improve.
Key Takeaways
UK manufacturing is facing headwinds from multiple directions: falling orders, rising costs, and policy uncertainty. While actual output has held up better than sentiment suggests, the trend is worrying. The sector needs relief on multiple fronts—lower interest rates, policy clarity, and cost stability—before we’ll see meaningful recovery. Keep an eye on Friday’s PMI data for signs of stabilisation, or further decline.
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FAQ
Q1: Why did UK manufacturing orders fall so sharply in October?
A: High interest rates, uncertainty around the Budget, and weak export demand all contributed. The CBI survey showed orders dropped to minus 38, down from minus 28 in September.
Q2: How much did the national insurance hike affect manufacturers?
A: The Chancellor’s £25bn increase to employers’ national insurance contributions is adding significant pressure to already squeezed profit margins. Combined with high energy costs, it’s making UK firms less competitive.
Q3: Are UK manufacturers paying more for energy than competitors?
A: Actually, UK manufacturers pay less than US firms, who face energy costs four times higher. However, energy expenses still remain a significant burden on UK manufacturers’ margins and competitiveness.
Q4: What’s the outlook for UK manufacturing?
A: Analysts at Pantheon Macroeconomics say they don’t expect a rapid turnaround soon. However, actual output has outperformed pessimistic surveys this year, suggesting manufacturers are more resilient than sentiment indicates.
Q5: When will we get the next manufacturing data?
A: S&P Global will publish October’s flash PMI estimates on Friday morning. Economists forecast a slight 0.1-point improvement for manufacturing.
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Effective Date: 15th July 2025
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