5 Key Challenges Facing UK Manufacturing in 2025

As 2025 approaches, the sentiment amongst UK manufacturers is a complex mix. Once optimistic following the new Labour governments announcement of a new industrial strategy – Invest 2035 – is now dampened by their Autumn Budget. It comes on top of an already challenging landscape where rising costs, stagnant domestic demand, and global uncertainties continue to weigh heavily on the sector, according to the latest Manufacturing Outlook.

While output has shown some recovery in the recent months, with exports providing a lifeline, confidence has dipped sharply. UK manufacturers are now grappling with the cumulative impact of higher payroll taxes, ongoing skills shortages, and flatlining domestic orders.

As we head into 2025, what are the key challenges manufacturers can expect, and what strategies can help navigate them?

As the American pendulum swings back to a Republican Administration, the outlook for UK manufacturers is dominated on what Trump refers to as the most beautiful word in the dictionary – the ‘tariff’. On his first day in office, the President-elect pledges to implement a 10% tariff on all US imports, a move that could disrupt global trade patterns significantly. While Trump’s rhetoric largely targets nations with significant trade surpluses with the US, the UK’s post-Brexit trading environment leaves it navigating between two giants: an EU bloc potentially retaliating against US tariffs and a US administration looking for bilateral deals that might involve concessions. The balance Starmer strikes could define the landscape for UK manufacturers over the next decade.

The US is a significant market for UK car manufacturers, with exports valued at $6.7 billion last year. Proposed tariffs could adversely affect manufacturers like Jaguar Land Rover and Aston Martin, which rely heavily on the US market. But the EU appears to be the one on Trump’s radar, as he looks to bring internationally dominant industries, like automotive, into America; “I want German car companies to become American car companies. I want them to build their plants here.”

While UK automotive exports may avoid direct tariffs, a broader slowdown in global trade, or ‘slobalisation,’ threatens to tighten supply chains and deter investment. For example, UK suppliers reliant on European or Asian components may face delays and cost increases, eroding their competitive edge in global markets.

A large concern amongst economists is that Trump’s tariffs could stoke the embers of inflation. As the US is the world’s largest importer of goods, tariffs slapped onto imports and any retaliatory measures will lead to the cost of goods rising significantly. Given the complex interdependence of global economies, the impact will extend beyond the US and those directly affected by the tariffs. The National Institute of Economic and Social Research (NIESR) forecasts UK inflation could be 3-4 points higher over the next two years, if Trump’s tariffs are enforced.

Inflationary pressures would disproportionately impact sectors with already thin margins, such as consumer electronics and industrial machinery. To combat these challenges, UK manufacturers might accelerate investments in nearshoring or automation to control costs, though such measures require significant upfront investment and long-term planning.

The UK manufacturing sector is approaching a state of stunted growth should manufacturers fail to address the now critical skills gap to meet demand. James Devonshire, Editor at The Manufacturer writes: “One of the key insights from the report is the overwhelming consensus among manufacturers about the severity of the skills gap.”  Their research, in partnership with Barclays Corporate Banking, finds that 75% of manufacturing professionals identified the lack of skills as the biggest barrier to growth, yet 97% agree that hiring and retaining skilled labour presents a challenge to the growth of their business.

By next year, Gen Z are expected to make up one-third of the UK workforce, who are known to prioritise their needs. They expect more flexibility, a better work-life balance, but also work that is meaningful and fulfilling. In the UK manufacturing sector, retaining young employees has proven to be challenging. The Manufacturer report finds that several manufacturers highlighted this issue, citing concerns over their mindset, expectations, and commitment levels. But others noted that young workers often enter manufacturing by chance rather than with a clear career focus. Another report highlights that 41% of SMEs reported losing apprentices to job or career changes, with many seeking better opportunities elsewhere, underscoring the difficulty in retaining young talent who may not see manufacturing as a long-term career path.

As school leavers embark on their career journey, UK manufacturers face competition from other industries. The sector is often overlooked by young people, who frequently gravitate towards opportunities in other industries such as tech or finance. Alike manufacturers, these sectors are also seeking a similar tech driven skillset but tend to offer higher salaries, making them more attractive to young talent. Then there comes the image problem, with one respondent from The Manufacturer’s report described a “stigma of being dirty, sometimes dangerous…”.

While the levy was introduced to address the growing skills gap, its implementation has resulted in mixed outcomes, particularly for SMEs. Since its introduction, £2.178 billion in unspent funds has been returned to the Treasury, emphasising inefficiencies and a lack of accessibility for smaller businesses. SMEs cite excessive bureaucracy and unclear guidance as barriers, leaving many unable to fully benefit from the scheme. Retention and completion issues further exacerbate the problem, with businesses investing in apprentices only to lose them before completing their training. Larger organisations have seen better outcomes by tailoring apprenticeship schemes and collaborating with training providers. However, without addressing systemic issues – such as simplifying processes and improving access to funding—the levy risks falling short of its potential to close the skills gap.

The drive toward supply chain localisation has gathered pace in recent years, spurred by a series of seismic global disruptions: the pandemic, geopolitical unrest, and escalating environmental pressures. For British manufacturers, however, this isn’t new territory. Brexit reshaped trading relationships overnight, pushing many EU customers to source goods closer to home in a bid to avoid the red tape. But in a world still grappling with supply chain fragility, could UK manufacturers now be poised to turn the tide?

Once seen as a distant prospect, reshoring and nearshoring are now gaining real traction as manufacturers grapple with rising costs and fragile global supply chains. For UK manufacturers, the business case is increasingly clear. Rising costs, supply chain instability, and the need for tighter operational security are driving firms to bring production closer to home.

Recent data reveals that 58% of UK manufacturers are already reshoring, with 90% reporting benefits such as greater supply chain resilience and cost efficiency. One manufacturer, cited by the BBC, experienced an £800,000 surge in orders, with up to 43% linked to reshoring efforts.

Beyond cost savings, reshoring is also a response to shifting market dynamics. As product life cycles shrink and consumer demands accelerate, proximity to production offers UK firms the flexibility to innovate and adapt. This closeness fosters seamless collaboration between design and production teams, enabling faster adjustments to products and processes.

Meanwhile, the so-called “Amazon effect” has raised expectations for swift delivery times, making localisation a competitive necessity.

On the other hand, there could be a more ominous factor driving supply chain localisation but not quite in favour of UK manufacturers. The EU’s General Product Safety Regulation (GPSR) was enforced this month, replacing the previous directive and introducing stricter requirements for product safety, traceability, and documentation. For UK manufacturers with EU customers, it could mean either biting the bullet, withdrawing from the EU altogether, or setting up subsidiaries.

According to Osborne Clarke, this new regulation requires manufacturers importing goods to the EU to appoint a designated “responsible person” established in the EU. This individual or entity is tasked with compliance responsibilities, including maintaining product documentation, verifying safety, and acting as the contact point for market surveillance authorities. Without such a presence, products cannot legally be sold within the EU, and since Northern Ireland remains aligned with EU single market rules for goods, imports into NI also apply.

Additionally, manufacturers must meet stringent traceability requirements by ensuring product labelling includes details such as the responsible person’s contact information. These measures, while aimed at enhancing consumer safety, place significant financial and operational pressure on UK manufacturers.

For some, this could be a compelling reason to relocate certain aspects of their operations, such as final assembly or packaging, within the EU to simplify compliance and improve market access. Others may look to EU-based suppliers to meet the regulatory standards more efficiently. However, these shifts come with significant cost implications, particularly for smaller manufacturers, who may struggle to justify the expense of restructuring their supply chains to accommodate the new rules. This dynamic may force many UK manufacturers to weigh the long-term benefits of EU market access against the rising costs of maintaining compliance.

Adopting technological advancements and innovating new products and production methods are widely regarded as solutions to the challenges faced by UK manufacturers. Many industrial leaders have quite frankly urged manufacturers to get on with it and start adopting new tech to enhance productivity and competitiveness. For those already implementing advanced tech have enjoyed the benefits. A recent report from iBASEt highlights that 68% of manufacturers have said implementing smart factory technologies have made them more productive, and 51% reported increased agility. But other data underscores the disparity in technology adoption between large firms and small to medium-sized enterprises.

On the other hand, The Manufacturer argues that Industry 4.0 began in the 1990s, but it wasn’t until the Covid-19 pandemic – 30 years later – that tech was significantly adopted. The reason for why then is clear – social distancing and operational challenges, but what took so long?

And, how does adopting advanced tech in UK manufacturing compare to the rest of the world?

Despite the clear benefits of advanced technology, UK manufacturers have held back over doubts. This reluctance stems from entrenched ways of working and uncertainty about the cost, complexity, and potential risks of a digital transformation.

For many, the fear of disrupting long-established systems outweighs the promise of increased productivity. Employees worry about job losses, while leaders hesitate to invest without guaranteed returns. SMEs, in particular, face the double burden of tight budgets and a lack of digital expertise, making the adoption of technologies like AI and automation seem like a leap into the void.

Compared to global leaders like Germany, where government backing and a strong industrial culture have driven swift adoption, the UK lags behind. Programmes such as Made Smarter are working to address these fears, but progress remains slow.

Comparing UK manufacturers’ adoption of advanced technology to other global players highlights some key differences: Speed of adoption, government support, and investment levels. So, how does the UK stack up?

The UK’s adoption of advanced manufacturing technologies is moving forward, but the pace is uneven. Aerospace and automotive giants are blazing the trail, yet SMEs remain stuck in the slow lane, held back by financial hurdles and a lack of digital expertise.

Germany, meanwhile, has surged ahead with its Industrie 4.0 initiative, fuelled by hefty government investment and a collaborative industrial ecosystem. Across the pond, the US capitalises on innovation hubs and deep-pocketed private funding, while China’s state-driven Made in China 2025 plan has turbocharged its adoption of advanced tech with generous subsidies and tax breaks.

The numbers don’t lie: In robotics density – robots per 10,000 workers – the UK trails far behind. Germany deploys 297 robots, China boasts 322, and the UK? A modest 101. While programmes like Made Smarter have supported more than 2,500 UK manufacturers, the initiative barely scratches the surface of what’s needed to bring digital transformation to the nation’s broader SME sector.

Many SMEs have dipped their toes into digitisation or robotics, adopting individual technologies to specific problems. While these efforts deliver quick wins, they often fall short of the transformational impact needed to truly boost productivity and competitiveness. For UK manufacturing to compete on a global scale – piecemeal progress simply won’t cut it.

Fully digitalised factories, by contrast, demonstrate the value of a comprehensive transformation. In Germany, Industrie 4.0 initiates have created factories where IoT systems, AI-driven analytics, and robotics work together seamlessly, driving productivity gains of up to 30% in some sectors. These factories operate with real-time data insights that optimise production, predict maintenance needs, and eliminates inefficiencies.

In the UK, the story is different. A Make UK report further confirms the fear of change, as UK manufacturers still approach digitalisation with caution, adding small technologies in isolation  rather than integrating systems across operations. The result is limited gains – slightly faster processes of reduced manual tasks – without the broader productivity or competitiveness seen in fully digitalised counterparts.

The UK manufacturing sector is no stranger to navigating economic headwinds, but the past year has tested its resilience like never before. Rising operational costs are reshaping the landscape, squeezing margins, and forcing tough decisions across the board. Recent data from Make UK reveals a stark reality: 70% of UK manufacturers have experienced cost increases of up to 20% over the past year, with 8% reporting increases up to 50%. This escalating financial pressure has triggered the steepest decline in industry confidence since the height of the pandemic, casting a long shadow over the sector’s growth prospects.

For many manufacturers, the Autumn Budget has amplified existing challenges rather than alleviating them. Changes to taxation and employment policies, including adjustments to National Insurance Contributions, have introduced a new wave of financial strain. Promises of long-term stability, like the New Industrial Strategy, have been overshadowed by immediate fiscal pressures, leaving businesses caught between rising costs and an uncertain economic outlook. The budget’s impact has been profound, dampening optimism and raising questions about the sector’s ability to invest in innovation and growth at a time when both are critical for maintaining competitiveness.

The continued grapple with labour market challenges, from persistent skills shortages to rising employment costs are weighing up on manufacturers, outlines the Make UK report. While the acute disruptions of the pandemic may have eased, systemic issues remain. Vacancy levels have begun to stabilise, but wages are climbing as businesses compete for skilled talent in a tightening labour pool. This escalating cost of labour, coupled with legislative changes, is placing a significant strain on manufacturers, prompting many to rethink their workforce strategies. Automation and upskilling initiatives may hold promise, but they require time, investment, and a stable economic environment—resources that are increasingly under pressure.

Energy and material costs remain a thorn in the side of UK manufacturers, with no signs of significant relief on the horizon. Despite some easing in global inflationary pressures, domestic input costs continue to rise, driven by volatile energy markets and lingering supply chain disruptions. For many firms, the question is no longer on how to manage expenses – it’s how to survive 2025. Manufacturers are being forced to pass on costs to customers or risk eroding already razor-thin margins. As energy prices stubbornly defy expectations of cooling, the sector finds itself caught in a perfect storm of rising overheads and unpredictable global markets.

The picture isn’t too pretty, but there could be light at the end of the tunnel. UK manufacturers are reeling from the Chancellor’s tax-heavy Autumn Budget, grappling with rising operational costs, energy price volatility, and increasing material expenses. The intensifying skilled labour shortage adds another layer of complexity, with businesses struggling to attract and retain the talent needed to remain competitive.

As Trump’s trade policies loom on the horizon, and the EU’s General Product Safety Regulation (GPSR) introduces stricter compliance requirements, the UK manufacturing industry finds itself navigating a perfect storm of challenges. Between the protectionist policies of the US and the regulatory tightening of the EU, manufacturers face costly adjustments amid an already competitive global market. While tariffs may not directly target British industries, their indirect impact – ranging from inflation to supply chain disruptions – will be keenly felt.

However, opportunities lie in the UK’s push for localisation, with reshoring efforts boosting supply chain resilience and fostering flexibility. Additionally, the government’s product safety reforms and renewed focus on skills training offer a pathway to align with global standards, ease regulatory frictions, and address critical workforce gaps. Yet, for UK manufacturers to thrive, embracing advanced technology and moving beyond piecemeal progress will be essential. Full-scale digital transformation, coupled with proactive strategies to navigate global uncertainties, will determine the sector’s ability to overcome these headwinds and chart a course for growth in 2025.

To rise above these challenges, manufacturers will focus on operational resilience but should also embrace the power of strategic communications. This is where B2B marketing plays a central role, enabling businesses to connect with stakeholders, communicate value, and differentiate themselves in a crowded, challenging market.

As a B2B marketing agency with a proven record of helping UK manufacturers overcome complex challenges since 2008, we’ve outlined some brief and universal marketing tactics manufacturers should consider.

Trump’s trade policies and the ripple effect of global tariffs require proactive communication with international stakeholders. Why not mitigate uncertainty by leveraging B2B marketing to strengthen a position in alternative markets? Using targeted LinkedIn campaigns and regionalised SEO strategies, manufacturers can highlight their commitment to quality and reliability in markets unaffected by US tariffs, potentially in the Middle East.

With a shrinking talent pool, manufacturing companies need to present themselves as desirable employers. A strong employer brand built on showcasing workplace culture, growth opportunities, and technological innovation can attract younger talent. Social media campaigns featuring employee testimonials, apprenticeship success stories, and “day in the life” content can help dismantle outdated stereotypes about manufacturing careers.

As supply chain localisation becomes more popular, manufacturers can capitalise on this trend by communicating the advantages of working with local suppliers. Marketing campaigns that highlight shorter lead times, reduced carbon footprints, and enhanced reliability can position manufacturers as ideal partners for businesses seeking resilient supply chains. Case studies and thought leadership on reshoring successes are particularly effective in demonstrating value.

Digital transformation can address many operational challenges but marketing its benefits internally and externally makes it more profitable. B2B campaigns can showcase how technology adoption enhances productivity, reduces costs, and improves sustainability. Highlighting these investments through product demo videos, whitepapers, or virtual factory tours can establish manufacturers as forward-thinking leaders.

When cost pressures increase, the ability to demonstrate value becomes a top priority. B2B marketing should emphasise the unique benefits and long-term savings of your products or services. Developing tools like ROI calculators or launching campaigns that focus on lifecycle cost advantages can help overcome customer resistance to higher prices.

While these tactics provide a universal approach to help alleviate the challenges UK manufacturers face in 2025, we appreciate that each firm will have its own unique set of circumstances, goals, and constraints. Factors such as company size, market, available resources, and specific operational challenges require tailored strategies to ensure maximum impact. We, at Beach Marketing – a specialist Manufacturing Marketing Agency – offer solutions to align with UK manufacturers objectives to help overcome complex challenges, differentiate themselves in competitive markets, and drive measurable growth.