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, are 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 period and forecasts for the future.
Economic Overview
As the economy approached mid‑2026, recent official data provide a clearer indication of the UK’s overall economic position, and conditions remain challenging. GDP grew by 0.6 per cent in Q1 2026, improving on the 0.2 per cent recorded at the end of 2025. Production output increased by 0.2 per cent, while manufacturing maintained relatively stronger growth at 0.8 per cent. Within manufacturing, the chemical industry recorded marginal growth of 0.1 per cent, remaining below its 2023 baseline and highlighting continued structural pressures.
Sectoral performance across UK manufacturing remained uneven. More defensive and high value‑added industries such as Food, Drink and Tobacco, pharmaceuticals and aerospace continued to show resilience, supported by stable demand, strong export performance and rising investment in defence and life sciences. By contrast, chemicals and automotive faced greater difficulties linked to high energy costs, geopolitical uncertainty, trade disruptions and weaker industrial demand.
Inflationary pressures persisted. CPI averaged 3.4 per cent in 2025 and rose again to 3.3 per cent in March 2026, remaining above the Bank of England’s 2 per cent target. Labour market activity softened further, with payrolled employment declining by 0.3 per cent over the year and unemployment reaching 5.0 per cent in early 2026. Wage growth in the chemical sector remained above CPIH inflation, reflecting the sector’s concentration of skilled roles and premium pay arrangements.
Internationally, the UK’s chemical performance continues to mirror wider European weakness. Output remained below its 2023 level, while producers in the United States, China and India recorded comparatively stronger momentum. Chemical trade also softened, with non‑EU exports declining and EU imports remaining elevated, underlining persistent competitiveness pressures.
Insights from our industry
At the start of 2026, the chemical sector showed modest signs of improvement following the prolonged weakness seen throughout much of 2025, but overall conditions remained challenging. New orders returned to expansionary territory, with 31 per cent of respondents reporting increases. EU exports, production levels and capacity utilisation also improved compared with late‑2025 trends, suggesting early stabilisation rather than full recovery.
However, the recovery remained uneven.
33 per cent of firms continued to report lower total sales
48 per cent reported decreasing profit margins
Cost pressures intensified sharply, with 88 per cent experiencing higher raw material prices, 85 per cent higher import costs and 80 per cent higher export costs
Expectations for Q2 2026 suggest that firms anticipate further improvement in activity. Around 35 per cent expect stronger new orders, while 30 per cent anticipate higher total sales and one‑quarter foresee improvements in exports. However, employment expectations remain contractionary, with only 3 per cent expecting staffing levels to increase. Investment intentions also remain subdued, indicating that firms plan to use existing capacity rather than commit to new expansion.
The 12‑month outlook remains moderately positive overall, particularly for sales, exports and production‑related indicators. Around 38 per cent of respondents expect higher sales and exports over the coming year, while 35 per cent foresee stronger new orders. Nevertheless, hiring and investment intentions remain weak, suggesting that firms remain cautious regarding longer‑term expansion. Cost pressures are expected to persist, with more than 80 per cent anticipating further increases in raw material, import and energy costs.
The survey also highlights an important shift in the nature of the challenges facing the sector. Energy costs remained the most significant concern, identified by 48 per cent of respondents. Raw material costs increased sharply in prominence, while weakening demand became relatively less dominant compared with late‑2025. Expectations suggest that cost pressures will deteriorate further over the coming months, particularly in relation to raw material, energy and freight costs.
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 final quarter of 2025, the chemical sector showed signs of stabilisation after the sharp deterioration seen in Q3, but overall conditions remained contractionary. Total sales continued to weaken, with most firms still reporting declines, and international performance remained subdued, despite a modest improvement in non‑EU export demand. Production levels and capacity utilisation stabilised but did not recover, reflecting ongoing caution and persistently fragile workloads.
