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 moved through Q2 2026, newly released official data provided an early indication of the UK’s overall economic position. GDP grew by 0.4%, following increases of 0.6% in Q1 and 0.2% in Q4 2025. Production output stagnated at 0.0%, while manufacturing strengthened, expanding by 1.0%. Within manufacturing, the chemical industry recorded marginal growth of 0.3%, remaining well below its 2023 baseline and highlighting persistent structural pressures.
Sectoral performance across UK manufacturing became increasingly uneven. More defensive and high‑value industries—Food, Drink and Tobacco, pharmaceuticals and aerospace—continued to show resilience, supported by stable demand, strong export performance and investment in defence and life sciences. By contrast, chemicals and automotive faced deeper challenges linked to high energy costs, geopolitical disruption, supply‑chain pressures and weaker industrial demand.
Inflationary pressures eased but remained elevated. CPI fell from 3.3% in March to 2.6% in June, before rising again to 2.9% in July as energy costs increased. Labour market activity stayed subdued: payrolled employment declined by 0.3% over the year, and unemployment stood at 4.9%. Wage growth in the chemical sector remained comparatively strong at 3.6%, reflecting the sector’s concentration of skilled roles and premium pay arrangements.
Internationally, UK chemical performance continued to mirror wider European weakness. Output remained below 2023 levels, while producers in the United States, China and India recorded stronger momentum. Chemical trade also softened, with non‑EU exports declining and EU imports remaining elevated, underlining ongoing competitiveness pressures.
Insights from our industry
The Q2 2026 business survey indicates some improvement in trading conditions compared with Q1, with more firms reporting increases in total sales, exports, production and capacity utilisation. New orders strengthened, and some disruption‑related demand provided temporary support. However, conditions remained far from broad‑based.
The recovery remained uneven:
Lower total sales persisted for 33% of firms
Profit margins continued to decline for 48%
Cost pressures remained widespread: 88% reported higher raw material costs, 85% higher import costs, and 80% higher export costs
Expectations for Q3 suggest broadly stable activity rather than strong improvement. Around 35% expect stronger new orders, 30% anticipate higher total sales, and one‑quarter foresee improved exports. Employment expectations remain contractionary, with only 3% expecting staffing levels to rise. Investment intentions also remain subdued, indicating firms plan to rely on existing capacity rather than commit to expansion.
The 12‑month outlook is more positive for demand‑related indicators: around 38% expect higher sales and exports, and 35% anticipate stronger new orders. However, hiring and investment intentions remain weak, reflecting caution around longer‑term growth. Cost pressures are expected to persist, with more than 80% anticipating further increases in raw material, import and energy costs.
The survey also highlights a shift in the nature of the sector’s challenges. Energy costs remained the most significant barrier, identified by 48% of respondents. Raw material costs rose sharply in prominence, while weakening demand became less dominant than in late‑2025. Expectations suggest cost pressures will intensify further over the coming months, particularly across raw materials, energy and freight.
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.
Momentum in the chemical sector picked up through the second quarter of 2026, with more companies reporting rising sales, stronger export activity and firmer production levels. Rest‑of‑world demand provided a welcome lift, and new orders continued to hold up, offering some stability after a subdued start to the year. Even so, the overall picture remained delicate. Domestic sales softened, EU exports lost ground, and staffing levels continued to fall, while persistent increases in raw material, import, export and energy costs kept operating conditions tight and progress uneven.
