Dominic Simon (Senior Associate) and Adrian Slater (Partner) of Nelsons delve into the challenges, disputes and opportunities in the UK manufacturing sector.
The Executive Survey 2025, conducted by Make UK and PwC UK, provides a comprehensive overview of the current state and future outlook of the UK manufacturing sector. The survey highlights both the optimism and challenges faced by manufacturers as they navigate rising costs, regulatory changes, and economic uncertainties. In this article, Simon Key, Adrian Slater and Dominic Simon of Derby, Leicester and Nottingham's Nelsons, summarise the Survey’s findings and comment on the implications for dispute resolution and litigation in the manufacturing sector.
Rising Costs
A significant 92% of manufacturers cite employment costs as their primary concern for 2025. The 2024 Autumn Budget introduced measures such as increased National Insurance Contributions and higher minimum wage levels, which are expected to substantially impact operational costs. These changes mean that manufacturers will have to allocate more resources to meet their payroll obligations, potentially affecting their profitability and ability to invest in other areas. It is also the case that 70% of manufacturers anticipate a significant or moderate increase in energy costs, exacerbating the existing financial pressures on the sector. The rising energy costs may be driven by factors such as global energy market volatility and the transition to greener energy sources. Manufacturers also expect increases in other areas, such as taxes, technology, business rates, materials, and logistics.Compliance and Regulatory Changes
The Government’s Employment Rights Bill, progressing through Parliament, introduces new compliance demands, including increased protections for workers and new requirements for employers. Day-one rights, guaranteed hours, and compensation for cancelled shifts will each add to the significantly increasing operational costs manufacturers are facing. The Bank of England is also expected, at least in the short term, to maintain interest rates at 4.75% to manage inflation, further adding to the financial pressure. Manufacturers that rely on loans and credit to finance their operations are likely to feel the impact on their cash flow management and potentially struggle to invest in new technologies or compete with less credit-dependent manufacturers.How Manufacturers Plan to Mitigate Increasing Costs
With 69% of manufacturers surveyed planning to pass on increased costs to customers, it could lead to higher consumer prices and potential inflationary pressures. However, this approach carries the risk of reduced demand if customers are unwilling or unable to absorb higher prices. Of those surveyed, 68% also intend to focus on productivity improvements to offset rising costs. By enhancing productivity, manufacturers aim to reduce operational inefficiencies and lower production costs. This includes investments in digital transformation automation (such as artificial intelligence), and energy efficiency. Manufacturers are looking to innovate and invest in new technologies, with a particular focus on AI and digitalisation. These investments are seen as critical for enhancing productivity and maintaining competitiveness.Growth Opportunities and International Ambitions
47% of manufacturers see expanding their product portfolios as a key growth strategy for 2025. This includes exploring new products and services to meet changing consumer demands. Additionally, 37% of manufacturers are considering exporting to new countries, with a focus on non-EU markets such as North America and Asia. This international ambition is seen as a vital component of their growth strategy. Manufacturers are increasingly looking to leverage digital technologies, cloud computing, and AI to drive growth and efficiency. These technologies are expected to play a central role in their operational strategies, transforming how manufacturers operate and compete. While these intentions are promising, the current economic uncertainties and rising costs pose significant challenges. It remains to be seen whether these ambitious plans will come to fruition. Only the most financially robust manufacturers, with the necessary resources and resilience, are likely to fully implement their strategies and achieve their growth objectives.Public Policy and Industrial Strategy
There is optimism that the Government’s forthcoming industrial strategy, expected in Spring 2025, will benefit the manufacturing sector. The strategy is anticipated to focus on innovation, R&D investment, and the commercialisation of the UK’s research institutions. Manufacturers are calling for reforms to the business rates system, which disproportionately impacts investment-heavy industries. The 2024 Autumn Budget’s tax measures, including increased Capital Gains Tax and changes to Inheritance Tax, are expected to have long-term implications for the sector.Resilience and Supply Chain Management
Manufacturers are investing in supply chain resilience to mitigate the risks of disruptions. This focus on resilience is likely driven by the need to ensure continuity in production and delivery in the face of unforeseen challenges such as geopolitical tensions, natural disasters, or pandemics. Strategies include dual or multi-sourcing, near-shoring, digitalising supply chain management, and building “safety stocks” by overbuying inputs and components to ensure that production can continue even if there are delays or shortages in the supply chain.Dispute Resolution and Litigation Risks
The survey reveals a cautiously optimistic outlook among UK manufacturers. Despite facing significant challenges such as rising employment and energy costs, 63% of manufacturers surveyed believe that the opportunities in 2025 outweigh the risks. This optimism is driven by a strong commitment to innovation and efforts to offset increasing costs. Their positive outlook, combined with a focus on productivity and innovation, suggests that the sector is well-positioned for growth and opportunity in 2025. With the right support and continued commitment to innovation, manufacturers can look forward to promising opportunities. However, in the short term, as manufacturers face rising costs, regulatory changes, and supply chain challenges, the potential for disputes increases. Key areas of concern include:- Employment Disputes: The increase in employment costs and new compliance demands may lead to disputes over wage compliance, contract renegotiations, and employee rights. Manufacturers must be prepared to address these issues through effective dispute-resolution mechanisms.
- Contractual Disputes: Rising energy costs and supply chain disruptions could result in contractual disputes with suppliers and energy providers. Disputes may arise over contract performance, delivery delays, pricing adjustments, and breach of contract. Effective contract management, protective clauses and clear dispute resolution clauses can help mitigate these risks.
- Intellectual Property Disputes: As manufacturers invest in digital transformation and AI, protecting intellectual property rights becomes critical. Disputes over technology licensing, data protection, and IP infringements may arise. Manufacturers need to safeguard their innovations.
- International Trade Disputes: Expanding into new international markets presents opportunities but also risks. Manufacturers must navigate trade agreements, tariffs, and foreign regulations, which may lead to disputes requiring legal expertise in international trade law.