Manufacturers are warning that rising energy and operating costs are pushing production overseas and threatening the long-term future of the UK's industrial base, despite demand remaining relatively resilient.

A new survey by industry body Make UK suggests that while orders and output continue to hold up, many manufacturers are facing mounting financial pressure as energy prices, employment costs and wider business expenses erode profitability.

According to the survey, almost one in four companies have either already moved production overseas or are actively considering doing so. More than a quarter have less than a year's cashflow remaining, while investment plans are being delayed and headcounts reduced as firms seek to manage escalating costs.

Make UK says the situation risks accelerating deindustrialisation unless ministers take urgent action to reduce energy costs and improve industrial competitiveness.

Stephen Phipson, CEO of Make UK, said:

"The time for talking is over. The time for action is now. Britain faces deindustrialisation unless manufacturers get relief from high energy prices.

"Electricity and gas in the UK are far too expensive and it's costing our country steeply. We cannot afford to be delayed by political upheaval, or by further consultations. For the sake of thousands of jobs across Britain, the Government needs to step in and act now to expand the British Industrial Competitiveness Scheme to all of the manufacturing industry and speed up delivery."

The warning follows a survey of 254 manufacturers conducted between 6 and 27 May. It found that 9% of companies have already moved production overseas due to rising business costs, while a further 16% are considering doing so.

Energy remains a major concern. Almost half of manufacturers (46%) reported further increases in energy bills since the start of the conflict in the Middle East, adding to what were already among the highest industrial energy costs in the G7. Six in ten companies said they had passed these increases on to customers.

At the same time, manufacturers are also absorbing higher employment costs following increases in National Insurance Contributions and changes to contribution thresholds.

The survey suggests that demand remains relatively stable. Output improved to +26%, up from +21%, while orders remained positive at +18%, only slightly below the previous quarter's +21%.

However, profitability is under increasing pressure. Almost all companies (98%) said rising costs would have either a very significant or somewhat significant impact on margins. More than a quarter reported having less than 12 months of cashflow remaining, while one in ten said they were likely to become insolvent within the next year.

As a result, 38% of manufacturers have delayed investment plans and 21% have reduced employee numbers.

Make UK is calling on Government to bring forward the proposed British Industrial Competitiveness Scheme from 2027 and expand eligibility beyond the 10,000 companies currently expected to benefit, extending support across the wider manufacturing sector.

The call has also been backed by the Trades Union Congress.

Paul Nowak, General Secretary of the Trades Union Congress, said:

"BICS is an important step towards tackling the punishing cost of energy for manufacturers. But, with Donald Trump's reckless war in Iran continuing to hammer energy bills, the scheme needs to be expanded further to protect jobs and keep factories and plants running.

"We also need a long-term plan to support workers in manufacturing industries and bring bills down for good through energy efficiency and decarbonisation. That's how we can reduce the impact of shocks and secure the future of UK industry."

Reflecting the weaker outlook, Make UK has downgraded its forecast for manufacturing growth to 0.4% this year, down from a previous forecast of 0.9%, and predicts growth of just 0.1% in 2027.

The findings also suggest that confidence among manufacturers has fallen to its lowest level in four years, despite Government's Industrial Strategy promising action to improve competitiveness and reduce industrial energy costs.