Industry survey reveals continually rising energy costs, weakening demand and mounting investment pressures, as almost half of businesses cut production or operating activity.
The UK chemical industry is facing a deepening competitiveness crisis, with production forecast to fall by 2.4% in 2026. Global chemical production is suppressed, but Britain is the weakest-performing chemical producer among the major economies compared.
While India’s chemical production is forecast to grow by 2.9% and China’s by 1.9%, output in the EU is expected to decline by just 0.6%, with US production broadly flat. UK production is forecast to contract by a further 7.1% in the fourth quarter of 2026, highlighting the mounting pressure on a strategically important manufacturing sector.
The latest Chemical Industries Association (CIA) business survey paints a challenging picture of an industry battling high operating costs, weakening demand and increasingly difficult investment decisions.
Energy costs remain the biggest threat
Energy costs continue to dominate the industry’s concerns, with 52% of businesses identifying them as their single biggest challenge. A further 21% cited weakening demand, while 12% pointed to raw material costs.
The pressures are being felt directly on the factory floor. Almost half of respondents (46%) reported energy cost increases exceeding 10%, while 30% experienced rises of more than 10% in raw material costs. More than three-quarters (76%) said their energy costs had worsened during the quarter.
The impact on business performance is becoming increasingly apparent. Almost one-quarter of companies (24%) reported profit margin declines exceeding 10%, while 21% experienced comparable reductions in production and capacity utilisation.
Sales and production lose momentum
Business activity weakened significantly during the third quarter compared with the previous quarter.
The proportion of businesses reporting increased total sales fell from 46% to 20%, while the proportion reporting higher exports dropped from 41% to 14%. The share reporting increased production more than halved, from 32% to 15%.
Meanwhile, 39% reported falling total sales and 29% experienced a decline in new orders.
The consequences are already translating into reduced industrial activity. Around 45% of businesses reduced production or operating activity during the quarter. This included 19% reporting reduced operating rates, 14% reporting temporary shutdowns and 5% reporting permanent production capacity closures.
These findings raise concerns about the long-term consequences for UK manufacturing capacity, supply-chain resilience, skilled employment and the ability of domestic producers to meet the needs of customers across the wider economy.
Investment under pressure
The deterioration in operating conditions is also affecting investment. More than half of respondents (57%) said difficult market conditions had negatively affected planned investments during the third quarter.
Weakening demand was the leading reason for delayed or cancelled investment, cited by 41% of respondents. Energy costs accounted for 18%, while regulatory pressures were identified by 12%.
The short-term outlook offers little immediate relief. Most businesses expect activity to remain broadly unchanged in the fourth quarter, including domestic sales (63%), exports (61%) and production (56%). A substantial 78% anticipate no change in business investment, while one-third expect further declines in profit margins.
There is, however, some cautious optimism further ahead. Around half of respondents expect total sales (50%), production (48%) and capacity utilisation (49%) to increase over the next 12 months. Employment and investment expectations remain more subdued, with 63% and 62% respectively anticipating no change.
A strategic industry at risk
The figures underline the importance of the chemical industry to the UK economy. Chemicals were the country’s second-largest export commodity group in 2025, with exports valued at £66.3 billion. However, imports exceeded exports, reversing the broadly balanced trade position recorded in 2024.
Chemicals and pharmaceuticals combined were also the UK’s second-largest contributors to business research and development expenditure, narrowly behind software development.
The sector supplies essential materials and technologies to industries ranging from pharmaceuticals and healthcare to automotive manufacturing, construction, agriculture, electronics and clean energy. Its performance therefore has implications well beyond chemical manufacturing itself.
Government action on competitiveness
The survey sends a clear message about the priorities that businesses want Government to address. Reducing industrial energy costs emerged as the most important measure for improving the UK chemical industry’s competitiveness, followed by reducing the overall business tax burden and employment costs, including employer National Insurance contributions.
For an industry exposed to international competition, the challenge is not simply to manage costs but to ensure that the UK returns to an attractive place to manufacture, innovate and invest.
The Association’s Chief Executive Steve Elliott said the message is clear: “the UK cannot take its chemical manufacturing base for granted. With production under pressure, investment plans being disrupted and permanent capacity closures continuing to be reported, improving the conditions for competitive industrial production is becoming an increasingly urgent economic and strategic priority.
He added ‘this sobering survey confirms that Government interventions such as the Critical Chemicals Resilience Fund, energy cost relief under BICS and the review of our trade defence measures cannot come quickly enough. However, these are sticking plaster solutions which will still leave the UK uncompetitive in terms of making chemicals - whether they are commodities or specialities. If reindustrialisation and growth in every post code are to mean anything to a recognised key foundation industry, then we must adopt a much more ambitious growth and manufacturing-friendly culture and action plan right across Government. We still have world class research, world class companies and world class talent in our chemical sector, so let’s create the environment for all of that to flourish”.
ENDS
NOTES TO EDITOR
For more information please contact Simon 07951 389197
- Businesses who make chemical products and solutions are integral to something like 96% of all manufactured goods. Whether it is ingredients for food and medicines; paints and coatings for cars and planes or materials for mobile phones and electric vehicle batteries or defence equipment, the chemical industry is truly the “industry of industries”
- The Government’s 2025 industrial strategy said “at the core of Advanced Manufacturing underpinning all domestic manufacturing.”
- Chemical businesses are located throughout the UK, with many of them clustered together in the North East of England, North West of England and Central Scotland. These factories and laboratories, operated by a highly trained and skilled workforce, make a significant contribution towards the UK’s productivity performance.
- Roughly 135 thousand people are employed in the sector and nearly half a million have roles that are dependent on the sector. Chemical workers typically earn around 25% more than other manufacturing industries and almost 40% more than the average worker.
- From Runcorn to the Humber Bank; from Teesside to Grangemouth, chemical businesses and their employees right across the country are essential to the Government’s levelling-up agenda.
- We are the country’s second biggest manufacturing exporters, sending goods to the value of more than £70 billion to other countries. The EU represents our biggest market, but we continue to work closely with Government to inform and secure UK trade deals with other key chemical markets such as India and the USA.
