Industry Faces “Perfect Storm” of Weak Demand, Rising Costs, and Uncertainty
The UK’s manufacturing sector experienced its sharpest decline in output volumes since mid-2020, according to the Confederation of British Industry’s (CBI) latest Industrial Trends Survey (ITS). Weak demand, both domestic and international, has led to deteriorating order books and mounting challenges for manufacturers heading into 2025.
The survey revealed that output volumes dropped by 25% in the quarter to December, down from 12% in the previous quarter. This marks the steepest contraction since August 2020. The outlook remains bleak, with manufacturers anticipating an even sharper decline of 31% in the quarter to March 2025—levels not seen since the early days of the COVID-19 pandemic.
Sub-Sector Challenges
The downturn has been widespread, with 15 out of 17 sub-sectors reporting declines. The hardest-hit industries include furniture and upholstery, glass and ceramics, and motor vehicles and transport equipment. Meanwhile, stocks of finished goods remain elevated, reminiscent of the early pandemic period.
Rising Costs and Inflation
Despite weakening demand, manufacturers are grappling with rising costs. Expectations for selling price inflation have surged, with firms predicting a rate of price increases significantly above the long-term average over the next three months.
“Manufacturing output appears to have contracted during the fourth quarter, with conditions across the sector looking more challenging than at any time since the COVID pandemic in 2020,” said Ben Jones, lead economist at CBI.
Jones pointed to a “perfect storm” of factors: declining external demand fueled by political instability in Europe and uncertainty over US trade policy, coupled with collapsing domestic confidence following the recent Budget. The Budget’s impact has reportedly increased costs, led to project cancellations, and reduced orders across the sector.
Call for Government Action
As firms brace for continued challenges in 2025, Jones called on the government to take immediate measures to restore business confidence and stimulate investment.
“Accelerating reforms to the apprenticeship levy, revising the timetable for business rate changes, and working in full partnership with boardrooms to develop a long-term industrial strategy would send a strong message that the UK remains a competitive destination for business,” he said.
Survey Insights
The survey, which included responses from 331 manufacturers, shows the urgent need for support as the sector faces its most challenging period since 2020. Without intervention, manufacturers warn that the outlook for the UK’s industrial base could worsen, further jeopardizing economic recovery.
