High energy prices threaten UK’s status as manufacturing power, business groups say

The UK is at risk of losing its status as a major manufacturing centre after a sharp rise in energy prices that has forced about 40% of businesses to cut back investment, according to a report by the CBI and Energy UK.In a stinging message to ministers, the report said British businesses – from chemical producers to pubs and restaurants – were being undermined by a failure to cap prices and upgrade the UK’s ageing gas and electricity networks.A far-reaching review of outmoded regulations that govern the sale and supply of energy is also needed to spur investment and boost economic growth, the report said.Energy UK, which represents more than 100 electricity generators and retailers, said business electricity costs remained 70% higher than before Russia’s invasion of Ukraine, while gas prices were 60% higher.A survey underpinning the report found that almost 90% of firms have seen energy bills rise over the last five years and four in 10 had reduced investment as a result.Without a reduction in energy bills, “the risk of job losses, production cuts, plant closures and offshoring will increase,” the report said.The CBI and Energy UK said ministers needed to join forces with industry to conduct a comprehensive review of the UK’s energy needs and how they can be met during the transition to net zero.A taskforce made up of researchers from both organisations and industry groups will consider how reforms could reduce prices and improve the efficiency of the gas and electricity networks.The aim is to persuade ministers that initiatives to improve the UK’s energy system have not gone far enough, leaving the UK in danger of widespread deindustrialisation.The UK has some of the most expensive industrial energy prices in the developed world. They are almost two-thirds above the median of International Energy Agency (IEA) countries and the highest among G7 members.As an indication of the impact, figures covering 2025 show the UK’s trade in goods slumped to its worst performance on record. Britain reported a £248.3bn deficit for goods – £30.5bn more than the previous year.The Office for National Statistics said the widening gap was only partly filled by a £192bn surplus in services, up £16.4bn from the previous year.Last year the manufacturers’ lobby group, Make UK, said the government should provide millions of pounds in extra subsidies to prevent the industry from shrinking.Louise Hellem, the CBI’s chief economist, said industrial sectors were already suffering severe financial pain from the dramatic rise in energy prices.“You can see it already in the chemicals industry, which has seen several closures,” she said.Hellem described this year as a “pivotal moment” for the UK’s industrial strategy.Among medium-sized businesses, UK electricity prices are around double the EU median. Nondomestic gas prices are in line with the EU, the report said, but are considerably higher than the likes of the US and Canada.“This acts as a brake on ambitions for economic growth. Also, businesses cannot invest in switching to clean energy – even though they know the long-term benefits of doing so – which again undermines one of the government’s key policies,” the report said.Energy minister Ed Miliband has sought to protect some of the UK’s biggest users of energy. Last year, the government said it would cut electricity prices by up to £40 a megawatt hour for 7,000 “heavy users” to “move the UK from being an outlier to right in the middle of the pack”.Dhara Vyas, the head of Energy UK, said she was concerned that thousands of businesses outside the ringfence would continue to be hampered by high energy bills.The government had made significant progress on reducing domestic energy costs, she said. But the help on offer for some industrial users was not only “a sticking plaster”, but it was also being funded by other bill payers.She added: “Lowering prices for all businesses is fundamental to the UK’s growth story.”She said the initial report showed “how high energy costs are holding back the UK economy, and the limits of existing support”.“But our aim will not be just about how to reduce bills. It will be the first of its kind to take a fundamental look at the energy market and the regulations to see how it can become more effective,” she said.