Persistently high energy prices are emerging as one of the most significant threats to the competitiveness of UK manufacturing, with growing evidence that they are not only eroding margins but also delaying critical investment decisions. A recent report from the Confederation of British Industry (CBI) and Energy UK highlights the scale of the challenge, warning that without decisive action, the long-term outlook for the sector could be at risk.
There is no doubt that UK industry is under pressure. Rising energy bills have become a defining concern for businesses across the UK, but the impact is particularly acute in manufacturing, where energy is often a major input cost. According to CBI survey data, nearly 90% of firms have experienced increases in energy costs over the past three years. More worryingly, around four in ten businesses say they are now planning to scale back investment as a direct result.
This pullback in investment has serious implications. Manufacturing relies heavily on long-term capital expenditure, whether that’s upgrading machinery, expanding production capacity or investing in low-carbon technologies. When energy costs absorb a growing share of operating budgets, businesses are left with fewer resources to fund these essential improvements. Over time, this risks creating a cycle of underinvestment, and declining competitiveness.
Of course, already high wholesale prices and expensive levies already made UK energy costs the highest in the world. Add to this the conflict in the Middle East, which took many businesses by surprise, and many businesses have seen energy costs soar still further, to say little of highlighting the vulnerability of certain supply chains, once geopolitical events occur.
Analysis shows that electricity prices for UK businesses are significantly higher than those in many comparable economies. In fact, industrial electricity costs are nearly two-thirds above the median of countries in the International Energy Agency and are the highest among G7 nations.
For medium-sized manufacturers, the situation is even more pronounced. Electricity prices are roughly double those seen across the EU, placing UK firms at a substantial disadvantage when competing internationally. In an increasingly globalised market, where production can often be relocated, such cost disparities are difficult to ignore.
Even in sectors that receive targeted government support, the gap remains significant. Industries such as steel, which benefit from certain energy cost relief schemes, can still face electricity prices between 14% and 25% higher than competitors in countries like France and Germany. This persistent differential raises important questions about the effectiveness of current policy measures and whether they go far enough to level the playing field.
The consequences of high energy costs are already being felt across the sector. In energy-intensive industries such as chemicals, there have been reports of factory closures and the mothballing of production facilities. Some companies are responding by reducing headcount or cutting working hours in an effort to manage rising overheads. These actions not only affect individual businesses but also have ripple effects throughout supply chains and local economies.
Beyond the immediate impact, there are longer-term strategic concerns. For multinational manufacturers, decisions about where to locate new production lines or expand existing operations are heavily influenced by cost considerations. When the UK consistently ranks as a high-cost energy market, it becomes less attractive as a destination for investment. Competing countries with lower energy prices are better positioned to secure these opportunities, potentially leading to a gradual shift of industrial activity away from the UK.
Manufacturing plays a critical role in driving innovation, but a decline in investment and competitiveness within the sector could have far-reaching consequences for the UK’s overall economic performance.
In response, the CBI and Energy UK have called for a comprehensive, cross-departmental strategy to address business energy costs. They argue that affordable and reliable energy is not just a sector-specific issue, but a fundamental requirement for economic growth and industrial resilience. Without coordinated action, there is a risk that rising network charges and policy-related costs will continue to push prices higher, exacerbating the challenges already facing businesses.
The report suggests that reform is urgently needed to ensure that UK manufacturers can compete on a more equal footing with their international peers. This may involve rethinking how energy policy costs are distributed, as well as exploring ways to reduce the overall burden on industry without compromising the transition to net zero.
Ultimately, the message is clear: high energy costs are no longer a temporary pressure but a structural issue that demands attention. If left unaddressed, they risk undermining investment, weakening supply chains, and eroding the UK’s position as a competitive manufacturing hub. For policymakers and industry leaders alike, the challenge now is to turn recognition of the problem into meaningful action—before the consequences become irreversible.