Britain’s chemical industry is facing with a strengthening production crisis, with manufacturing forecast to fall by 2.4% in 2026 as soaring energy costs, weakening demand and increasing investment pressures leave UK manufacturers lagging far behind major worldwide competitors.
The UK is forecast to be the weakest-performing chemical manufacturer among the major economies, with output anticipating to contract by a further addition 7.1% within the fourth quarter of 2026, as per the latest Chemical Industries Association (CIA) business survey.
The outlook contrasts significantly with forecast growth of 2.9% in India and 1.9% in China. Chemical manufacturing within the EU is expected to say no by using just 0.6%, even as US output is forecast to stay widely flat.
The survey, addressing the third quarter of 2026, discloses an industry under rising pressure, with nearly half of businesses cutting manufacturing or operating activity and more than half reporting that hard market conditions have hit planned funding.
CIA chief executive Steve Elliott warned that the UK could not afford to take its chemical production base for granted , as the industry confronted the prospect of further capacity losses and declining competitiveness.
Energy costs squeeze factories
Energy costs stay the industry’s biggest threat, mentioned by 52% of businesses as their single greatest challenge. Weakening demand for accompanied at 21%, whilst 12% detected raw material costs.
The financial strain is escalating . More than three-quarters of respondents (76%) stated energy prices had worsened during the quarter, even as 46% reported energy cost increase exceeding 10%. A further 30% experienced raw material cost rises of more than 10%.
The squeeze is feeding directly into business performance. Almost one-quarter of companies (24%) reported profit margin declines exceeding 10%, whilst 21% experienced comparable reductions in manufacturing and capacity utilisation.
The figures underline the developing difficulty of running energy-intensive production operations in the UK while competing with manufacturers in international markets.
Sales, exports and manufacturing lose ground
Business activity weakened significantly in the third quarter, with fewer companies reporting growth across sales, exports and manufacturing.
The proportion reporting increased total sales plunged from 46% in the previous quarter to 20%. Businesses reporting higher exports fell from 41% to 14%, while the share reporting expanded manufacturing more than halved, from 32% to 15%.
Meanwhile, 39% of companies reported falling total sales and 29% experienced a decline in new orders.
The downturn is already forcing producers to scale back operations. Around 45% of businesses decreased manufacturing or operating activity during the quarter, which includes 19% that cut operating rates, 14% that pronounced temporary shutdowns and 5% that reported permanent manufacturing capacity closures.
The latest figures boost fresh concerns about the erosion of Britain’s industrial capacity, the resilience of domestic supply chains and the future of skilled produces jobs.
Investment plans hit via deteriorating conditions
The pressure is extending beyond daily operations, threatening the industry’s ability to invest, expand and compete.
More than half of respondents (57%) stated difficult marketplace situations had negatively impact planned funding during the third quarter.
Weakening demand was the leading factor behind delayed or cancelled ventures, cited by 41% of businesses. Energy prices accounted for 18%, while regulatory pressures were blamed by 12%.
The instant outlook stays subdued. Most businesses anticipate activity to stay widely unchanged in the fourth quarter, including domestic sales (63%), exports (61%) and manufacturing (56%).
Investment prospects are similarly muted, with 78% expecting no change in business investment. One-third of respondents anticipate profits margins to fall further.
There are some signs of cautious optimism over the long term. Around half of of groups anticipate total sale (50%), manufacturing (48%) and capacity utilisation (49%) to increase over the next year. Moreover, employment and investment expectations stay weak, with 63% and 62% respectively expecting no change.
A blow to a strategically important industry
The deteriorating outlook threatens a sector central to Britain’s broaden production economy.
Chemicals were the United Kingdom’s second-largest export commodity group in 2025, with exports worth £66.3 billion. Moreover, imports exceeded exports, reversing the widely balanced trade position recorded in 2024.
Chemicals and pharmaceuticals integrated were also the UK’s second-largest contributors to business research and development expenditure, closely behind software development.
The sector supplies important materials and technologies to industries spanning healthcare, pharmaceuticals, automotive production, construction, agriculture, electronics and clean energy. Its decline therefore risks consequences a far beyond chemical factories, impacting the competitiveness of businesses and supply chains across the economy.
The industry employs around 135,000 people, whilst around half a million jobs rely on the sector, as per the CIA. Chemical workers generally earn around 25% more than workers in different production industries and nearly 40% more than the common worker.
Industry calls for urgent government action
The survey puts pressure on the Government to address the costs and conditions undermining the United Kingdom’s industrial competitiveness.
Businesses detected lower industrial energy costs as the most vital measure for improving the chemical industry’s role, followed by reductions in the average business tax burden and employment costs, which include employer National Insurance contributions.
Elliott stated: “The UK can’t take its chemical production base for granted. With manufacturing below pressure, investment plans being disrupted and everlasting permanent capacity closures persisting with to be reported, improving the conditions for competitive industrial manufacturing is becoming into an an increasingly urgent economic and strategic priority.
He added: “This sobering survey confirms that Government interventions including the Critical Chemicals Resilience Fund, energy cost relief under BICS and the review of our trade defence measures cannot come quickly enough. Moreover, those are sticking plaster solutions which will still leave the UK uncompetitive in terms of making chemicals- whether they’re commodities or specialities.
“If reindustrialisation and growth in every post code are to intend anything to a identified key foundation industry, then we must adopt a much more ambitious growth and production-friendly culture and action plan right across Government. We still have have class research, world class businesses and world class expertise in our chemical sector, so permit’s create the environment for all of that to flourish.”
The warning emphasize the gap among short-term support measures and the industry’s demand for a more fundamental shift in policy to make Britain a competitive destination for production and investment.
With output declining, investment decisions below pressure and everlasting capacity closures already being reported, the survey raises a stark question for policymakers: how much of the United Kingdom’s chemical production base can be lost before than rebuilding it becomes significantly harder?
