The UK manufacturing sector continues to face a challenging operating environment. Rising costs across supply chains, operations and workforce management are creating sustained pressure on margins, while ongoing economic uncertainty is making long-term planning increasingly difficult.
In our latest Business Risk Index 2026 report, manufacturers identified the high cost of materials (88%), high cost of operations (77%) and high cost of salaries (68%) as their three most significant business concerns. These findings highlight the financial pressures affecting manufacturers today and the need to build resilience in business operations.
While rising costs aren't a new challenge, the combination of multiple cost pressures occurring simultaneously is forcing many manufacturers to reassess how they manage risk, maintain competitiveness and support long-term growth.
The growing cost challenge for manufacturers
Manufacturing businesses have always needed to balance cost control with investment, productivity and customer demands. However, in today's market, cost pressures are being felt across nearly every aspect of operations.
Material costs remain the most significant concern, with 88% of manufacturers citing them as a key risk. Fluctuating commodity prices, supply chain disruption, geopolitical uncertainty and increased transportation costs can all contribute to higher input prices. When margins are already under pressure, these increases can be difficult to absorb without passing costs on to customers or adjusting production strategies.
At the same time, operational costs continue to rise. Energy expenditure, logistics, warehousing, property costs and other overheads represent a substantial burden for many manufacturers. Gallagher's Business Risk Index found that 77% of manufacturing businesses view operational costs as a major challenge, reflecting the broad impact these expenses can have on profitability and business performance.
Workforce costs are also increasing. With 68% of manufacturers identifying salary costs as a significant risk, organisations are navigating a complex labour market where attracting and retaining skilled employees remains a priority while managing payroll expenditure carefully. The challenge becomes particularly acute for businesses already dealing with material and operational cost inflation.
Why resilience matters more than ever
Cost pressures cannot always be prevented, but businesses can take steps to improve their ability to respond to changing conditions.
Business resilience is often associated with disruption events such as supply chain failures or cyber incidents. However, financial resilience is equally important. Manufacturers that understand their exposures, identify vulnerabilities and develop plans for different scenarios are often better positioned to respond when market conditions change.
A resilient organisation is typically one that can:
- Adapt to fluctuations in material and supply chain costs
- Monitor and manage operational expenditure effectively
- Plan for workforce challenges and labour market changes
- Maintain continuity when unexpected disruptions occur
- Balance short-term pressures with long-term strategic objectives
Achieving this requires a broad view of risk management that considers both immediate financial pressures and emerging business risks.
Looking beyond costs
While rising costs dominate the current risk landscape, manufacturers are also managing a range of interconnected challenges.
Our Business Risk Index research highlights concerns around competitive pressures, regulatory change, supply chain disruption and the adoption of new technologies. These factors can significantly influence business decisions, investment priorities and operational strategies.
For example, efforts to improve efficiency through automation or digital transformation may help offset some rising costs. However, they can also introduce new exposures related to technology, cyber security and business continuity. Similarly, diversifying suppliers may strengthen supply chain resilience but require additional oversight and risk management.
Understanding how these risks interact is an increasingly important part of building long-term resilience.
Top 10 risks as cited by manufacturers in the 2026 Business Risk Index
| Risk | % |
| High cost of materials | 88% |
| High cost of operations | 77% |
| High cost of salaries | 68% |
| Competition within sector | 66% |
| Imposed costs, such as national insurance (NI) increases | 64% |
| Supply chain disruptions | 64% |
| Cost-of-living crisis impact on customer spending | 59% |
| Impacts of regulatory change | 50% |
| Impact of US tariffs | 48% |
| Adopting AI | 48% |
Taking a structured approach to risk
As manufacturers navigate ongoing uncertainty, taking a structured approach to risk management can help support more informed decision-making.
This may include:
- Reviewing supply chain dependencies and vulnerabilities
- Assessing the potential impact of rising operational costs
- Evaluating workforce-related risks and succession planning
- Considering business continuity arrangements
- Identifying emerging risks that could affect future operations
- Regularly reviewing insurance and risk management strategies
By understanding potential exposures and their business impact, manufacturers may be better positioned to make decisions that support both stability and growth.
Supporting manufacturing businesses through change
Manufacturers are operating in an environment where cost pressures, market uncertainty and evolving risks are increasingly interconnected. The challenge is no longer simply responding to individual issues as they arise, but understanding how multiple risks can affect overall business resilience.
The Business Risk Index 2026 highlights the concerns currently shaping the sector, from material costs and operational expenditure to workforce challenges and broader business risks. By taking a proactive approach to risk management and resilience planning, manufacturers can gain greater visibility of their exposures and make more informed decisions in an uncertain market.
