Nearly three-quarters of British manufacturers are already working in defence or exploring how to get into it, and four in five have adopted or are trialling artificial intelligence, according to the accountancy firm Crowe.
The findings come from the firm’s Manufacturing Outlook Report, produced with the Confederation of British Metalforming, which found 72 per cent of those surveyed engaged in or exploring defence manufacturing opportunities and 80 per cent adopting or actively trialling AI, the latter up sharply from 52 per cent in the spring of last year.
Crowe sees the pull towards defence coming from one sector in particular. The report notes that the British automotive industry is under pressure, creating what it calls a significant opportunity for firms in the automotive supply chain to pivot towards supplying defence instead, which is the same shift visible in Germany as suppliers to carmakers look for work elsewhere.
The pressures on the sector have not eased to make room for any of it. Rising operating costs were named as the biggest barrier to growth by 57 per cent, outweighing every other concern, with increased wages, higher employer National Insurance contributions, energy prices and inflation all squeezing margins. Skills shortages topped the recruitment difficulties for 62 per cent, a marginal improvement on 64 per cent in the spring.
Stuart Weekes, partner and head of manufacturing at Crowe, said: “As the Government’s Industrial Strategy begins to take shape, manufacturing remains at the heart of the UK’s ambitions for innovation, productivity, economic growth, and national resilience.
“A thriving manufacturing industry can play a vital role as the engine room of the UK economy. In the face of significant challenges, such as rising energy costs and geopolitical uncertainty, the sector has consistently shown resilience. While many of these challenges remain, the findings from this latest survey suggest UK manufacturers are increasingly focusing on future opportunity rather than simply responding to disruption.
“The resilience of UK manufacturing has been demonstrated time and again. The opportunity now is to convert that resilience into sustainable growth through investment, innovation, skills development and technology adoption.”
Stephen Morley, president of the Confederation of British Metalforming, said: “Overall, the message from the survey is one of resilience, but also transition. Manufacturers are dealing with high cost and skills pressures while simultaneously investing in AI, exploring new markets, responding to customer demands around carbon and considering opportunities to reshore production. The challenge now is turning that ambition into sustainable growth.
“Businesses that invest in skills, technology and innovation, while getting ahead of regulatory and supply chain changes, will be better positioned to compete in what is likely to remain a challenging but hopefully opportunity-rich manufacturing environment.”
The proportion funding growth from internal cash reserves has fallen to 43 per cent from 82 per cent in the spring, which suggests either that firms are borrowing or that the reserves have run down. Appetite for reshoring has also cooled, with 71 per cent open to it against 98 per cent six months earlier. Only 37 per cent successfully claimed research and development tax relief in the past year, and Crowe attributes that to businesses being unaware they qualify, worried about compliance or put off by the complexity of claiming.
Seventy-two per cent is a remarkable proportion for a sector where defence has historically been a specialist niche served by a few hundred firms, and it reflects a change in how British industry reads the next decade rather than a change in how much work is actually available. Whether the department can absorb that interest is a different question, since the barriers to becoming a defence supplier have less to do with willingness than with security clearances, quality accreditation and the time it takes to get onto a prime contractor’s approved list.
The report is based on responses from more than 60 manufacturing businesses across the United Kingdom collected in June and July, and is now in its eighth year.
