The CIA gathers industry insights through a quarterly business survey to advocate for our members’ interests with policy makers, regulators and other stakeholders.
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The chemical and pharmaceutical industry is fundamental to modern society. With an immense variety of products, from vital medicines and foods, the construction of buildings, to transport and leisure, the industry truly does have an impact on virtually every aspect of our daily lives.
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In this page: Economic Overview | Insights from our industry | Full report
The Chemical Industries Association undertakes a quarterly business survey of member companies. The data collected, and official data provided by the Office for National Statistics, is then presented back to members for further analysis. The economic report looks at the topics discussed by members in addition to the economic performance of the prior quarter and forecasts for the future.
For the first few months of the year, uncertainty has been the chosen word to describe current economic conditions. The introduction of US tariffs added a new level of unknown to the global sphere, both in terms of future expectations of growth and investment decisions. Global growth forecasts have been revised downwards, with 2025 forecasts for UK real GDP growth being decreased from 1.5%/2.0% to 1.0%. The downturn of the international industrial sector is expected to continue as manufacturers continue to battle high operating costs, lack of long-term regulation, and third-country overcapacity.
Focusing on chemicals, in 2024 output contracted by 1.8% and is expected to contract by a further 0.3% in 2025. Official data, coupled with results from our business survey and recent announcements, indicate just how challenging conditions have been for the past few years.
Headline inflation in March came in at 2.6%, just above the 2.0% target from the Bank of England. Inflation in 2025 is expected to average 3.2%, as US tariffs increase global price levels and Employer NICs increase domestically generated inflation. The unemployment rate increasing to 4.4% and economic activity slowing led the Monetary Policy Committee to cut interest rates to 4.25% in May, but the committee will likely wait to see the impact of US tariffs on international inflation before delivering further cuts.
Due to weak demand, chemical input and output prices have deflated for roughly twenty consecutive months. Over the past three years, input prices have been higher than output prices, but recently, input prices fell quicker than output prices, narrowing the gap between the two. As of January 2025, chemical input prices are 5.4% higher than output prices, as opposed to the 7.5% recorded in January 2024.
The labour market remains challenging, with chemical companies experiencing difficulties recruiting and pressure to increase salaries. In the chemical industry, total pay rose by 3.1% in the three months to February 2025 compared to the same period a year prior.
In the first quarter of 2025, the chemical sector saw a modest uptick in demand, with 39% of respondents reporting higher sales compared to Q4 2024. However, production volumes remained largely unchanged, and the increase in sales did little to boost profitability, with fewer than 30% of businesses reporting an improvement in margins. Employment declined sharply, with 22% of respondents reporting reduced headcount — the steepest drop recorded in two years. Input costs continued to rise, with energy prices increasing for 22% of respondents and raw materials for an additional 39%. Anecdotal evidence indicates that US firms are starting to increase prices in anticipation of higher costs linked to tariffs.
Despite these pressures, sentiment for Q2 2025 showed some resilience, with 34% of respondents expecting demand to improve. However, workforce reductions are expected to continue, with 24% of businesses anticipating further reductions. Most respondents (56%) believe profit margins will remain flat in the near term. Looking ahead over the next 12 months, optimism remains muted compared to previous surveys.
Geopolitical instability and cost inflation remain top concerns. The main challenges identified were energy costs, weak demand, and rising labour costs. Many businesses also mentioned US tariffs as one of the pressing challenges for their business — both in how they impact trade with the US, global economic growth, global trade flows, and overall uncertainty.
Concerns around regulation and contractor performance were also prominent. Some (39%) reported inefficiencies in regulatory processes, with comments noting under-resourcing as a leading cause of delays, poor attention to detail, and difficulties in retaining regulatory talent. Contractor performance was rated as neutral by most, but 20% of firms noted negative impacts from unreliable or less productive contractors. Energy costs in 2024 represented over 40% of total operating expenses for energy-intensive firms, up from an average of 15% in 2018. Regarding apprenticeships, 64% of respondents indicated plans to recruit apprentices in 2025, though many cited difficulties with the Apprenticeship Levy.
At the CIA we undertake a quarterly business survey of our membership to identify arising trends, gather consensus and evaluate industry feel regarding arising issues to communicate with government and the media on operating conditions for chemical manufacturers across the quarter. Results from the business survey are discussed in the quarterly economic report. The data collected, and official data provided by the Office for National Statistics, is presented back to members for further analysis. A comprehensive economic report is then published, looking in detail at the topics discussed by members, in addition to the economic performance of the prior quarter and forecasts for the future.
Download report for a full analysis of the sector’s performance against the wider economy and further understanding of critical industry challenges. For more information contact CIA Head of Economics, Michela Borra at borram@cia.org.uk
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Despite a strong 2.7% expansion in Q2 followed by a 0.9% expansion in Q3, output levels in November 2024 fell to an eleven-year low.
