Four in five UK manufacturers turn to AI as sector eyes defence opportunities for growth

Audit, tax, advisory and consulting firm, Crowe, provides a snapshot of the UK manufacturing market with its latest Manufacturing Outlook Report.
UK manufacturers are increasingly looking to AI and defence opportunities to drive growth, despite continued pressure from rising operating costs, skills shortages and economic uncertainty, according to Crowe’s latest Manufacturing Outlook Report, conducted in partnership with the Confederation of British Metalforming (CBM). The report shows how manufacturers are embracing artificial intelligence, exploring defence manufacturing opportunities and strengthening supply chain resilience strategies to improve competitiveness and support long-term success. Read the full report here.
Key findings include:
80% have adopted or are actively trialling AI, up from 52% in Crowe’s Spring 2025 Outlook report.
72% are engaged in or exploring defence manufacturing opportunities.
57% identify rising operating costs as their biggest barrier to growth.
62% cite skills shortages as their biggest recruitment challenge, a marginal decline from 64% in the Spring 2026 Outlook report.
43% continue to fund growth through internal cash reserves, down from 82% in Crowe’s Spring 2026 Outlook report.
37% have successfully claimed R&D tax relief.
65% have already received carbon footprint or energy-efficiency requests.
71% are open to reshoring opportunities, down from 98% in the Spring 2026 Outlook report.
Defence opportunities emerge as a route to growth
Defence manufacturing is emerging as a significant opportunity for UK manufacturers, with 72% of respondents already engaged in or exploring opportunities in the sector. Against the backdrop of increased focus on national security, supply chain resilience and domestic manufacturing capability, defence spending presents a potential route to growth for businesses with the capacity, compliance standards and technical expertise to serve this market.
The UK’s automotive sector is under pressure and so this creates a significant opportunity for those in the automotive supply chain to diversify and pivot to supplying the defence supply chain.
Attracting and retaining skilled workers remains key barrier
The challenge of attracting and retaining skilled workers continues to be one of the most significant barriers facing UK manufacturers. Nearly two-thirds (62%) of respondents identified a shortage of qualified applicants as their biggest recruitment challenge, highlighting an issue that has consistently appeared throughout Crowe’s recent Manufacturing Outlook reports.
Manufacturers are also facing a growing workforce succession challenge, with experienced engineers, technicians and leaders approaching retirement. Without a stronger pipeline of skilled talent entering the sector, businesses risk losing valuable expertise at a time when demand for technical and digital skills is increasing. This is a fundamental challenge to the sector.
As manufacturers continue to invest in automation, AI and advanced technologies, ensuring access to the right skills will be critical to sustaining productivity and innovation. The long-term competitiveness of UK manufacturing depends not only on attracting new talent, but also on transferring critical knowledge as an ageing workforce retires.
Cost pressures continue to constrain growth ambitions
While manufacturers remain resilient and optimistic about future opportunities, persistent cost pressures continue to constrain growth ambitions. Rising operating costs were identified as the biggest barrier to growth by 57% of respondents, significantly outweighing all other concerns.
Increased wage costs, higher employer National Insurance contributions, energy prices and ongoing inflationary pressures are continuing to squeeze margins and make investment decisions more challenging. Addressing the UK’s cost pressures will be key to enabling manufacturers to invest with confidence and fully capitalise on emerging opportunities.
Innovation remains critical, but barriers persist
Innovation continues to play a central role in driving growth across the sector. Encouragingly, four in five manufacturers are now either using or actively trialling artificial intelligence, while businesses are increasingly investing in automation, digitalisation and process improvements to improve efficiency and strengthen resilience.
Despite this, barriers to innovation remain. Just over a third (37%) of respondents reported successfully claiming R&D tax relief during the past 12 months, with many businesses either unaware they may be eligible, concerned about compliance requirements or deterred by the complexity of the claims process. As the Government seeks to place manufacturing at the heart of its industrial strategy, improving access to innovation support and encouraging greater investment in new technologies will be essential for maintaining the UK’s position as a leading centre for advanced manufacturing and industrial innovation.
Stuart Weekes, Partner and Head of Manufacturing at Crowe, comments:
“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 (CBM), comments: “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.”