UK Manufacturing: Momentum builds but insolvency pressures keep the outlook mixed

The UK manufacturing sector has entered 2026 with renewed momentum. The latest S&P Global UK Manufacturing PMI rose to 51.6 in January 2026, marking the strongest improvement since August 2024. This rise reflects the largest increase in production since October, alongside the first uptick in new export orders in four years, driven by strengthening demand in Europe, the US and China.

This improvement in output and new orders directly mirrors one of the core themes in FRP’s Manufacturing Agenda the sector’s latent capacity for recovery when external conditions such as export demand, supply-chain stability and financing costs begin to stabilise.

Growing optimism across manufacturing
Manufacturer sentiment has improved in early 2026. PMI respondents cited stronger pipelines, revived investment intentions, and the benefits of a steadier interest-rate environment as reasons for increased confidence. 

FRP’s Manufacturing Agenda emphasises that confidence and investment appetite rise rapidly when macro conditions stabilise. The current PMI uplift validates that position and demonstrates that manufacturers respond quickly when uncertainty begins to ease.

Manufacturing insolvencies: Still high despite the recovery in activity
UK Government industry-level insolvency data shows the manufacturing sector recorded 1,991 insolvencies in the latest dataset, representing 8% of all cases where a sector was identified. 

This sits within a broader environment in which approximately 2,000 total company insolvencies occurred in September 2025, essentially unchanged year-on-year and well above pre-pandemic norms. 

This reinforces a key conclusion of FRP’s Manufacturing Agenda.

Operational recovery and financial resilience are not the same thing
Many manufacturers continue to face legacy cost pressures, financing challenges and working-capital strain even as top-line demand improves.

Why the picture remains mixed
While PMI data signals improvement, key challenges remain:

Positive drivers 
· Growth in export demand for the first time in years 
· Strengthening confidence and renewed investment appetite 
· More predictable borrowing-cost environment supporting planning

These trends align closely with the FRP Manufacturing Agenda’s themes around global opportunity, reshoring potential and the willingness of manufacturers to invest when conditions allow.

Constraining pressures 
· Persistent input cost inflation (energy, metals, wages) 
· Labour-market softening, with job reductions in the PMI data 
· Elevated insolvency levels demonstrating ongoing financial fragility 
· Geopolitical uncertainty affecting supply chains and tariffs

These directly echo FRP’s findings on the sector’s exposure to energy volatility, skills shortages, and the continued fragility of supply chains.

Large vs SME manufacturers: Divergent resilience patterns
Government data does not currently break insolvencies down by business size. However we can assume that:

Large manufacturers
· More resilient to cost shocks
· Better positioned to absorb volatility
· Able to capitalise faster on export recovery

SMEs
· More exposed to cash-flow stresses
· Thinner working-capital buffers
· More sensitive to domestic demand fluctuations

The FRP Manufacturing Agenda highlights this dichotomy clearly, noting that mid-market and smaller manufacturers remain structurally more vulnerable, particularly in periods of elevated inflation and supply-chain disruption.

Key takeaways
The latest PMI and insolvency data strongly reinforce FRP’s Manufacturing Agenda themes:

· Recovery is possible and manufacturers respond quickly when conditions improve
· Optimism is returning, especially around exports and investment
· But financial resilience is uneven, and many firms, especially SMEs, remain fragile
· 2026 offers opportunities, but the landscape requires disciplined liquidity management, capital planning and strategic investment

Read the full FRP Manufacturing Agenda report here.

At FRP, we continue to support manufacturers with practical expertise in working-capital optimisation, refinancing, turnaround planning and operational improvement.