The UK’s manufacturing sector faces a significant threat as soaring energy costs force businesses to curtail investment, according to a joint report released today by the Confederation of British Industry (CBI) and Energy UK. The report warns that without intervention, the UK risks losing its standing as a major manufacturing hub.
Approximately 40% of UK firms have already reduced investment due to the sustained high cost of energy, the report states. Electricity prices remain 70% higher than they were before Russia’s invasion of Ukraine, while gas prices are up 60%, creating a substantial burden for businesses across various sectors, from chemical production to hospitality.
The CBI and Energy UK are calling for a comprehensive review of the UK’s energy needs and the transition to net zero, alongside reforms to the energy market and its regulations. They argue that the current system is failing to cap prices and is hampered by an ageing gas and electricity network. A taskforce comprised of researchers from both organizations and industry groups will be formed to explore potential solutions.
“Without a reduction in energy bills, the risk of job losses, production cuts, plant closures and offshoring will increase,” the report cautioned. Louise Hellem, the CBI’s chief economist, highlighted the immediate impact on key industries, citing closures within the chemical sector as evidence of the financial strain. She described 2025 as a “pivotal moment” for the UK’s industrial strategy.
The UK’s industrial energy prices are among the highest in the developed world, exceeding the median of International Energy Agency (IEA) countries by two-thirds and surpassing those of other G7 nations. This disparity is contributing to a widening trade deficit, with the UK reporting a record £248.3 billion deficit in goods for 2025, a £30.5 billion increase year-on-year.
Rain Newton-Smith, chief executive of the CBI, has warned that UK companies pay 50% more for their energy than their counterparts in France and Germany, and four times more than businesses in the US and Canada. She described energy costs as “an anchor on our ambition,” adding to an estimated £24 billion in extra costs imposed on businesses through tax and wage increases.
Energy minister Ed Miliband has introduced measures to alleviate the burden on large energy users, offering price cuts of up to £40 per megawatt hour to 7,000 “heavy users.” However, Dhara Vyas, head of Energy UK, expressed concern that this support is insufficient, describing it as “a sticking plaster” that is funded by other bill payers and leaves thousands of businesses still struggling with high costs.
Vyas emphasized the need for a broader solution that lowers prices for all businesses, stating that it is “fundamental to the UK’s growth story.” She added that the initial report demonstrates “how high energy costs are holding back the UK economy, and the limits of existing support,” and that the forthcoming review will focus on improving the effectiveness of the energy market and its regulations.
