Manufacturers warn of ‘fragile footing’ with Iran war set to hike costs

UK manufacturing has started the year on “fragile footing,” with its economic standing likely to worsen due to the conflict in the Middle East, the sector’s industry has warned.

A new report from Make UK revealed the sector is set to grow by just shy one one per cent in 2026, a modest rebound after contracting by 0.2 per cent in 2025.

But the manufacturing sector’s future outlook was described as “precarious,” with the report noting a sharp drop in UK over recent months had spiked fears domestic demand had “collapsed”.

Fhaheen Khan, senior economist at Make UK said: “UK manufacturers have started 2026 on a fragile footing.

“While output and investment show some improvement after a challenging end to last year, rising costs and weakening domestic demand are creating real pressures for businesses.”

The latest Purchasing Managers Index (PMI) for manufacturing showed a reading of 51.7 in February, above the 50-figure benchmark for neutrality in output. 

It was the highest figure recorded since late 2024, with manufacturing output now expanding in each of the last four months. 

It came as large and medium-sized companies were boosted by an uptick in export orders, with intakes of new work from China, the EU and the Middle East rising at the fastest pace in four and a half years. 

But the data was clouded by continued decline in employment and stocks of purchases. Though, S&P Global analysts said a decline in employment was the mildest seen over the last 16 months. 

Manufacturers call for North Sea green light

The industry body, which represents thousands of manufacturers, has called on the government to give the green light for North Sea drilling or risk a spike in energy costs amidst the surge in oil prices from the war in Iran.

Stephen Phipson, chief executive of Make UK, said: “Manufacturers are calling for the government to act quickly to progress with the Rosebank and Jackdaw developments to mitigate energy costs and energy security because of the conflict in the Middle East.”

Energy secretary Ed Miliband has pushed back on this, telling Sky News on Sunday Morning: “Some people want to go around and pretend that if we only we draw more [oil and gas from the North Sea,] prices would go down. That is totally false.”

Analysis from Oxford Economics has suggested the UK could be plunged into a recession should the price of a barrel of oil jump to $140, and remains at the elevated price until at least May. 

Oil closed above $100 for the first-time since 2022 on Thursday and ended the week above $103.

Khan warned: “With UK industrial energy costs among the highest in the developed world, any sustained increase in oil and gas prices could quickly push up input costs, squeezing margins and limiting investment.”