BLOG: Keeping Scotland’s Manufacturers Competitive
According to the latest data from the sector, Scotland’s manufacturers are experiencing a significantly more challenging trading environment than this time last year.
Softer sales and orders, weaker cashflow and investment, alongside increased cost pressures, all point to growing pressure on businesses and rising concerns around competitiveness.
In practice, competitiveness means the ability of Scottish manufacturers to win and retain orders, attract investment, protect margins and invest in productivity while competing with firms elsewhere in the UK and overseas.
As cost pressures rise, that ability to compete is already being tested.
One manufacturer responding to the latest survey said:
“The cost of energy & business rates are making it extremely difficult to compete against overseas competitors.”
Another manufacturer added:
“We are at the limit of absorbing costs while trying to keep prices affordable.”
These comments underline the point that higher costs are directly affecting firms’ ability to compete, protect margins, win orders and plan future investment.
Wider indicators point in the same direction. Make UK’s latest Manufacturing Outlook found confidence weakening and investment intentions falling sharply, while June’s UK Manufacturing PMI reported significant cost inflation linked to supply chain disruption and geopolitical tensions.
Our survey indicates that fuel costs have become the biggest cost pressure for manufacturers, rising from 14% in Q2 2025 to 67% in Q2 2026, a five-year record high. The same share also reported increased pressure from energy bills, the joint highest level recorded since Q3 2023.
Recent disruption in the Middle East has added further volatility to global fuel and energy markets, increasing costs at a time when many firms have limited capacity to absorb further shocks.
The IMF has warned that higher energy prices will increase production costs, push inflation higher temporarily and slow UK growth to 1.0% in 2026.
For an energy-intensive sector, the consequences are significant. Manufacturers cannot easily reduce energy use without affecting production. Therefore, higher fuel and energy costs feed directly into operating costs, squeeze margins and reduce capacity for investment elsewhere.
This matters because Scottish manufacturers are competing for orders and investment in a tougher global manufacturing environment.
Cambridge Industrial Innovation Policy has shown that the UK’s share of global manufacturing value added fell from 3.1% in 2000 to 1.9% in 2022, while China’s rose from 6.4% to 31% for the same period. The UK does have strengths in high-value sectors but faces growing pressure in global export markets.
There are also lessons from Germany and Singapore, where stronger industrial support systems have helped manufacturers adopt automation, digital technologies and higher-value production models. Make UK has also highlighted the UK’s automation gap, with robotic density around half the EU average.
The competitiveness challenge is twofold. Scottish manufacturers need immediate support to manage rising costs, but they also need the headroom to invest in energy efficiency, automation, digital adoption and productivity. Without that, higher operating costs risk becoming a long-term drag across the business.
Unlike geopolitical tensions, tariffs or supply chain disruption, industrial energy costs are an area where policymakers can take practical action to improve firms’ ability to compete.
The Scottish Government should reopen the Scottish Industrial Energy Transformation Fund or establish a successor fund focused on industrial energy efficiency and competitiveness.
A successor fund should support investment in efficient production equipment, heat recovery, process optimisation, on-site generation, storage, and electrification.
It should be accessible to SMEs, with simplified applications, proportionate evidence requirements and ringfenced support for smaller firms.
This would help firms reduce energy consumption, lower exposure to volatile markets, and free up resources for investment in equipment, technology and skills.
Targeted support to reduce industrial energy demand would be a practical step towards easing pressure on cashflow, protecting investment and helping manufacturers win business in an increasingly competitive marketplace.
