Facing the Pressure: How UK Manufacturers Can Overcome Rising Costs and Skills Gaps

Manufacturers across the UK are facing mounting challenges with rising employment costs, high energy prices and skills shortages. While technology offers a path forward, financial and structural headwinds continue to challenge growth and innovation. 

At NFU Mutual New Forest, Isle of Wight and Bournemouth, we support a number of manufacturing clients across our region. Here’s a closer look at some of the key challenges affecting the sector and how the adoption of new technologies could help. 

Rising costs put pressure on growth
Escalating employment and energy costs are placing manufacturers under significant financial strain. This rise is partly attributed to an increase in employers' National Insurance contributions (NICs) from 13.8% to 15% and an increase in minimum wage levels. 

Energy remains another costly pressure point. 70% of manufacturers expect their energy bills to rise this year1, with energy-intensive firms disproportionately affected. UK-based companies often face higher energy costs than competitors based in other markets, potentially putting them at a competitive disadvantage. 

These rising costs are leading many manufacturers to pass on price increases to customers. In fact, 69% plan to pass on the costs to customers this year[1]. While others are pausing or reducing investment in new technologies, including digitisation. Access to affordable finance remains a hurdle and is worsened by economic uncertainty and high interest rates.

Skills shortages make hiring difficult
Finding and retaining the right talent is a growing concern. as of December 2024, there were over 55,000 manufacturing job vacancies in the UK, according to ONS data[2].

The need for employees with the right skills, qualifications and experience is particularly short in digital and technical roles. Manufacturers increasingly need workers with skills in IT, cybersecurity, data analytics, and the ability to operate advanced machinery. Yet these particular skills are in high demand across other sectors, such as finance and tech, making the challenge of finding the right people even harder.

Attracting younger talent remains a persistent challenge, often due to outdated perceptions of manufacturing as a career path with many not understanding what a career in the sector would entail[3]. 

One commonly used route for attracting younger talent is through the Apprenticeship Levy. And while 74% of manufacturers prioritise apprenticeships, concerns over the admin the scheme entails and its value for money are among reasons why 43% do not use the Levy[4].

There is also a distinct gender imbalance: women represent only 26% of the UK’s manufacturing workforce[5]. The gender imbalance underscores the need for more inclusive recruitment strategies and outreach initiatives.

To fill this gap, many manufacturers are investing in training up their existing workforce, especially in areas like health and safety, leadership, and digital capability. A trend accelerated by rapid technological changes and the push toward net zero.

Uncertainty over policy and regulation
Another source of uncertainty affecting the sector is the government's planned industrial strategy and its impact on long-term growth. Manufacturers are awaiting further details on what the strategy will mean for areas like skills, commercialisation support, and regional growth strategies.

Regulatory uncertainty is also a concern. Frequent regulatory changes can make it difficult to plan for the future. More than half (54%) of manufacturers suggest frequent changes to policies and incentives make it harder to plan investments and R&D, according to Make UK[6]. It can also simply be costly and time-consuming to comply with regulations.

New regulations, such as the Extended Producer Responsibility (EPR) scheme, are also raising concerns. This scheme may see some manufacturers paying a fee for packaging they supply or import into the UK market. In fact, the Make UK report shows some manufacturers have stressed concern about the complexity and expense of this regulation[7].

Technology offers both opportunities and challenges
Many manufacturers view digital transformation as a lifeline. New technologies such as automation, cloud services and AI may help them offset cost pressures and provide vital ingredients for future growth. 

Investment in technology also has the potential to drive productivity improvements and help manufacturers meet customer demands for greater customisation, faster delivery, and more sustainable practices. This focus on innovation has many manufacturing companies embracing new technologies[8]. 

AI, in particular, could revolutionise processes such as predictive maintenance, supply chain optimisation, and customised production. While many manufacturers may be enthusiastic about the adoption of digital technologies and AI, others point to barriers. These include: 

• High upfront costs
• Shortage of digital skills
• Compatibility issues with legacy equipment
• Cybersecurity risks
   

Manufacturers that manage to overcome these hurdles may gain a decisive edge in efficiency and customer responsiveness.

The push towards net zero 
The global transition to net zero presents a potential opportunity for UK manufacturing. As countries work towards net-zero goals, demand is growing for products that help meet these targets such as electric vehicles, energy storage and renewable energy systems. 

The UK has a competitive edge in making a third of the 143 products needed in technologies to deliver net zero[9]. This could unlock new export markets and growth sectors for UK manufacturers. 

Manufacturers are also working hard to make their own energy efficiency improvements to offset rising input costs and support their own transition to net zero. To support them in this task, they’re seeking support such as government funding and reliefs. 

Final thoughts
As these challenges evolve, many manufacturers are reassessing how they protect and futureproof their operations. The outlook for UK manufacturing is undoubtedly complex. Rising costs, workforce shortages, and policy uncertainty create real risks, but they also present a clear call to action. Businesses that embrace innovation, invest in talent, and adapt to evolving regulations stand to gain a renewed competitive edge and unlock new growth opportunities.

Support you and your business
At NFU Mutual New Forest, Isle of Wight and Bournemouth, we support manufacturing businesses of all sizes helping to protect assets, manage risks and plan for growth.

Our friendly, experienced team lives and works in the communities we serve. We pride ourselves on building long-term relationships founded on trust, understanding and specialist local knowledge. 

With offices in Brockenhurst (New Forest), Newport (Isle of Wight) and Westbourne (Bournemouth), you’re always welcome to pop in for a chat. Our dedicated teams are here to help whenever you need us.

With a genuine commitment to our customers and an in-house claims team who’ll deal with you directly, we’re here to help protect what matters most.

Because with us, protecting your business is personal. 

New Forest: 01590 624744 | New Park, Brockenhurst, SO42 7QH

Isle of Wight: 01983 522290 | 2 Langley Court, Pyle Street, Newport, PO30 1LA

Bournemouth: 01202 764322 | 16 Landseer Road, Westbourne, BH4 9EH

Contact us at your local NFU Mutual Agency office.

 
[1] MakeUK, Executive Survey 25
[2] ONS, Sept 25
[3] The Manufacturer, Nov 23
[4] Barclays Corporate Insights Report, June 24
[5] Women in Manufacturing Report, 24
[6] MakeUK, Case Effective Regulation Report, Feb 25
[7] MakeUK, Case Effective Regulation Report, Feb 2
[8] MakeUK, Executive Survey 25
[9] IPPR, May 25