British manufacturing sector shrinks amid prolonged crisis
The British manufacturing sector is in the grip of a prolonged crisis, impacted by surging energy prices and global uncertainty, according to the latest research from Cynergy Bank.
The Bank’s latest Business Births and Deaths Index, released today, draws on the latest ONS data for April to June this year to show a bleak picture for the UK manufacturing sector.
In the second quarter of this year, just 2,835 new manufacturing businesses launched, down from 3,375 in Q1 and below the 3,135 recorded at the same time last year. The start of the quarter was marked by President Trump’s “Liberation Day” and the resulting tariff turmoil likely weighed heavily on business confidence.
The second quarter of this year also saw 3,225 manufacturing businesses close their doors, bringing the sector’s Cynergy Bank’s Business Health Score down to 0.88.
Manufacturing closures have outpaced new openings for more than four years, with the sector steadily shrinking since the first quarter of 2021. In that time, the UK has seen a net loss of 13,520 manufacturers, contracting approximately eight per cent from 170,000 manufacturing businesses in 2021.
UK economy sheds jobs
The malaise is rippling through the wider economy. The second quarter of this year saw a net job loss of 2,001 as more jobs vanished with closures than were created by startups, in the latest sign that the government’s tax rises, a higher minimum wage and the US trade war are hitting the jobs market.
Firms shutting down now have the highest-ever average turnover, of £310,000 and employ more people per company than before (2.97), indicating that closures are increasingly impacting larger businesses.
Meanwhile, the average start-up now employs just 2.79 people, among the lowest on record, down from 3.5 in 2017.
Sectors showing resilience
Despite the broader economic picture, several industries are flourishing and continue to buck the trend:
- Real Estate continues to expand, with a score of 1.39. Strong and resilient property demand makes real estate a stable and attractive investment option. Moreover, government ambitions to deliver new homes, reform planning, and invest in social housing create opportunities for start-ups and smaller businesses in the sector.
- Education holds steady with a strong 1.38, encompassing everything from preschools to specialist training. This is likely due to increased public funding, higher demand and demographic trends.
- Health and Social Care posts a healthy 1.21, buoyed by increased private sector activity and innovation as the NHS faces ongoing pressure.
- Transportation has achieved a Health Score of 1.07, its highest since Q4 2021, steadily improving every quarter over the past year, possibly due to higher demand as fewer people work from home.
Nick Fahy, CEO of Cynergy Bank, said: “Our latest Index shows the immense challenges facing British manufacturing, with persistent closures underscoring just how tough the trading environment has become.
“The sector is squeezed by some of the highest industrial energy costs in the developed world, volatile global markets, and rising employment bills.
“While the government’s new Industrial Strategy rightly pledges to cut electricity bills for thousands of manufacturing businesses from 2027, urgent action is needed now to preserve jobs and keep supply chains resilient.
“However, the story is not one of uniform decline. We’re seeing remarkable resilience and growth in sectors such as real estate, education, health, and transportation, industries that have managed not only to withstand economic turbulence but to seize new opportunities amid uncertainty.