The CIA gathers industry insights through a quarterly business survey to advocate for our members’ interests with policy makers, regulators and other stakeholders.
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.
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.
Economic Overview
As we move into early 2026, recent official data provide a clear indication of the UK’s overall economic position, and the picture remains challenging. GDP grew by 1.3 per cent in 2025, but quarterly momentum slowed steadily through the year, with Q4 delivering only 0.1 per cent growth. Services recorded no growth for the first time in two years, construction contracted and production, while slightly stronger, remained subdued. Inflation continued to ease, falling to 3.0 per cent in January 2026, but remained above the Bank of England’s 2 per cent target. At its February meeting, the Monetary Policy Committee voted to maintain Bank Rate at 3.75 per cent, reflecting the expectation that inflation will return closer to target during 2026.
Labour market conditions softened further. Unemployment rose to 5.2 per cent, the highest level since early 2021, and payrolled employment declined over the year. Wage growth continued to exceed inflation overall, supporting modest real income gains, and in the chemical sector earnings returned to positive real growth in 2025. However, the broader labour market picture points to weakening demand and a gradual loosening of conditions.
Focusing on chemicals, the sector remained one of the weakest performers in UK manufacturing. Output contracted sharply by 6.4 per cent in 2025 and remained well below its 2023 baseline. This sustained weakness reflects subdued industrial demand, high energy costs relative to global competitors and persistent structural competitiveness pressures. Internationally, the UK’s performance mirrors wider European declines, while the United States, China and India show comparatively stronger momentum. Chemical trade also softened, with exports falling across both EU and non‑EU markets and imports rising, resulting in a negative trade balance of £4.8 billion in 2025.
Insights from our industry
In the final quarter of 2025, the chemical sector showed signs of stabilisation after the sharp deterioration recorded in Q3, but overall conditions remained contractionary. Fewer firms reported declines in sales, new orders and production, yet most indicators stayed below the neutral 50 threshold. Demand improved modestly, particularly in non‑EU export markets, but activity levels remained subdued. Production and capacity utilisation stabilised without showing signs of recovery, reflecting consolidation rather than expansion.
Profitability remained under significant strain. Although raw material and energy cost pressures eased slightly, import and export costs continued to rise, and output prices did not increase enough to offset input pressures. As a result, 60 per cent of respondents reported falling margins, reinforcing that cost compression remains a defining feature of the operating environment. Employment continued to weaken, with firms maintaining a cautious approach to hiring.
Expectations for Q1 2026 are more positive. Respondents anticipate improvements in sales, exports and production, suggesting a cyclical uplift at the start of the year. However, employment intentions remain negative and both investment and R&D spending remain below neutral, indicating that firms plan to use existing capacity rather than commit to new expansion. Looking ahead to the next 12 months, expectations are moderately stronger but remain below historic norms. Around half of respondents expect higher sales, new orders and output, yet hiring and capital expenditure plans remain subdued, pointing to a gradual and demand‑led recovery.
The top challenges identified remain energy costs, weakening demand and rising labour costs, with raw material prices following closely. Demand weakness has become increasingly significant, reflecting the broader deterioration in sales, orders and production seen through the year. Energy costs continue to weigh on competitiveness, and regulatory pressures remain a concern for many businesses. On the opportunity side, respondents highlighted potential gains from new product development, access to new markets and greater specialisation in high‑value segments.
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.
In the third quarter of 2025, the chemical sector experienced a clear deterioration in operating conditions, following a period of relative stability earlier in the year. Total sales weakened noticeably, with 43% of respondents reporting lower sales, and international performance also softened, as 35% recorded declines in EU exports and 32% in exports to the rest of the world.
