UK manufacturers are holding back on recruitment despite improving demand and business confidence, as high employment and energy costs combine with uncertainty over further regulatory changes.
The employment balance in Make UK’s latest Manufacturing Outlook survey, produced with accountancy firm S&W, dropped from plus 15 per cent in the second quarter of 2026 to just plus 3 per cent in the third quarter.
Recruitment therefore remained positive, but the sharp slowdown suggests manufacturers are reluctant to add workers even as their expectations for the wider sector improve.
Official labour market figures reinforce the picture. Manufacturing vacancies fell 6.2 per cent compared with the previous quarter, while the number of workforce jobs in the sector declined by 81,000 in the year to March 2026, including a fall of 58,000 employee jobs.
Make UK said high employment, energy and other input costs were influencing recruitment decisions, alongside further changes under the Employment Rights Act 2025.
“High employment, energy and regulatory costs are forcing firms to think twice before taking on new people,” said Fhaheen Khan, senior economist at Make UK.
“Without action, ministers risk shutting people out of well-paid manufacturing careers and weakening the skills base the country needs for future growth.”
The caution over recruitment contrasts with a broader improvement in the industry’s outlook. Business confidence increased for the first time since the second quarter of 2025, while investment intentions also rose.
Orders remained positive, although the balance slipped from plus 18 per cent to plus 13 per cent. Manufacturers expect it to strengthen to plus 20 per cent in the fourth quarter.
Output growth slowed more sharply, with the balance falling from plus 26 per cent to plus 10 per cent, before an expected recovery to plus 17 per cent in the final quarter.
Price pressures also eased but remained elevated. The balance for UK prices declined from plus 36 per cent to plus 30 per cent, but manufacturers expect it to climb to plus 39 per cent in the fourth quarter.
Make UK has nevertheless upgraded its forecast for manufacturing output growth in 2026 to 1.2 per cent, from 0.4 per cent previously. Its forecast for 2027 was raised from 0.1 per cent to 0.3 per cent.
The industry group is expected to use its submission ahead of the Autumn Budget to press ministers to reduce employment and regulatory costs, arguing that stronger demand will not translate into jobs unless manufacturers become more confident about taking on workers.
