CIA Economic Report: Third Quarter 2025

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. 

Economic Overview

As we reach the end of Q3 2025, recent public finance data provide an indication of the UK’s overall economic health, and the picture remains challenging.

Public sector borrowing rose to £20.2 billion in September 2025, the highest September figure since 2020 and £1.6 billion more than a year earlier. Borrowing for the financial year to date has reached £99.8 billion, a 13.1% increase on the same period in 2024, while the current budget deficit has widened to £71.8 billion. Public sector net debt now stands at 95.3% of GDP, meaning the UK owes almost as much as it produces in a year, equivalent to roughly 95p of debt for every £1 of national output. Net financial liabilities have also risen to 83.8% of GDP, which reflects the government’s wider financial obligations once its financial assets are taken into account. Both indicators are close to historic highs, at levels not seen for around 60 years.

Focusing on chemicals, the volume of output produced by the chemical industry fell by 5.5% in Q3, following a 0.5% decline in Q2. These sharp contractions leave the sector significantly below pre-pandemic levels, with output in Q3 standing 33.3% lower than before the pandemic. This sustained weakness reflects a combination of weakening demand and growing international competitive pressures, as energy intensive.

During Q3, headline inflation remained steady at 3.8%, with the rate unchanged in September 2025. Housing and household services continued to make the largest contribution to the annual CPI inflation rate throughout the quarter. The UK’s inflation rate also remained higher than the EU27, which ended Q3 with CPI inflation at 2.6%. The last time UK inflation was lower than the EU average was in December 2024. At its meeting in September, the Monetary Policy Committee voted to maintain the Bank Rate at 4%, reflecting that inflation remains above the Bank of England’s 2% target.

Moving to the labour market, the unemployment rate increased in Q3, with 5% and vacancies on the quarter, for the 39th consecutive period. Total pay in the chemical sector increased by 4.8% around 1 percentage point above the 3.8% inflation rate, resulting in real terms pay growth. Regular pay increased by 4.0%, also slightly above inflation, leading to a small real-terms rise.

Insights from our industry

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. Production levels and capacity utilisation fell further, reflecting weaker demand and reduced workloads, and margins deteriorated sharply, with 54% of respondents reporting declines, the lowest margin index of the year. Employment continued its downward trend for another quarter, driven by restructuring and weaker order books. Input costs remained a significant pressure point, with raw material and energy cost indexes rising again, leaving firms unable to pass increases through as output prices remained flat.

Expectations for Q4 2025 remain subdued. Only a minority of respondents expect sales or production to improve, while most anticipate further declines in new orders, output and capacity utilisation. Concerns over additional cuts to employee numbers persist, and investment intentions remain weak, with firms signalling limited appetite for capital expenditure or R&D growth. Looking ahead to the next 12 months, expectations are more positive but remain below historic norms. Just over half of respondents expect higher sales, yet indicators such as production, orders and capacity utilisation point only to modest improvement. With UK chemical output still significantly below pre-pandemic levels, a meaningful recovery to previous standards appears distant.

The top challenges identified remain energy costs, weakening demand and rising labour costs, with raw material prices following closely. Weakening demand has become the most significant concern for respondents, reflecting the broader deterioration across sales, orders and production observed through Q3. Energy costs continue to weigh on competitiveness, with many firms citing the UK’s disadvantage relative to lower-cost regions. Regulatory burdens also remain a major concern, with several businesses reporting that UK sites face heavier compliance requirements than international counterparts, contributing to lost investment opportunities. On the opportunity side, respondents pointed to potential gains from new product development, access to new markets and greater specialisation in high-value segments.