Manufacturing continues to be one of the UK’s most important economic sectors. It already contributes around £220 billion of output annually, accounting for 42% of UK exports, almost half of all business R&D expenditure, and supports approximately 2.6 million jobs across the country. Now, new British PM Andy Burnham has made re-industrializing Britain and strengthening manufacturing a central pillar of the government’s agenda.
Consequently, the most recent edition of the twice-yearly Manufacturing Outlook report by audit, tax, advisory and consulting firm Crowe (in association with The CBM) makes for interesting reading as it finds that active use of AI has grown by 28% in the sector since 2025.
AI is seen as manufacturing’s little helper for familiar challenges
The latest survey was conducted in June and July 2026 and its findings suggest that UK manufacturers are increasingly focusing on future opportunity rather than simply responding to disruption. More than three-quarters of respondents have adopted or are actively trialling AI, demonstrating a growing recognition of the role technology can play in improving productivity, efficiency and competitiveness.
At the same time, nearly three-quarters of respondents are engaged in or exploring opportunities within defense manufacturing, reflecting increased defense spending, geo-political uncertainty, and the growing importance of sovereign capability and UK-based industrial capacity.
However, some familiar challenges remain. Rising operating costs were identified as the biggest barrier to growth by 57% of respondents, making it by far the most significant concern facing businesses over the next 12 months.
Richard Fallon, CEO, The Technology Supply Chain points to AI adoption as a way that companies are trying to reduce costs, saying:
Another familiar challenge identified by the report is a shortage of qualified applicants for manufacturing roles. 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. For this reason, succession planning is becoming as important as recruitment. As skills shortages continue to challenge the sector, AI is viewed as an opportunity to improve efficiency and support employees in higher-value activities.
AI begins to reach manufacturing’s core areas
The survey indicates that AI continues to gain momentum across UK manufacturing with 57% of respondents having already adopted AI within their business, while a further 23% are actively trialling solutions. Combined, this means that four-in-five manufacturers (80%) are either using or actively evaluating AI technologies. This represents a significant increase from the Spring 2025 survey, where 52% of respondents reported AI adoption. The findings suggest that AI has moved beyond experimentation and is increasingly being used to solve practical business challenges across manufacturing operations.
Indeed, the responses received demonstrate that AI adoption extends well beyond administration and marketing functions, with manufacturers increasingly applying AI to engineering, operational and decision-making processes. Those areas respondents called out include using AI in design requirements, toolpath optimisation, quality analysis and applying it to warranty data trends.
An example of AI’s use in design is provided by Geoff Archenhold, CEO of Integrated Systems Technologies who explains:
This yielded “a measured 10x to 20x productivity gain, with engineering judgement still owning every design decision.
At a time when businesses are increasingly investing in automation, AI, digitalisation and process improvement, innovation remains one of the sector’s most important drivers of competitiveness. British businesses can claim R&D tax relief for adoption of AI if the project creates a scientific or technical advance. Just over a third (37%) of respondents in the survey reported successfully claiming R&D tax relief during the past 12 months (it is not recorded how many of those used AI in their projects).
While this demonstrates continued innovation activity across the sector, it also means that almost two-thirds of respondents have not submitted a claim. The reasons for this ranged from 21% of respondents who stated that they did not believe they had sufficient qualifying activity, while 18% were unaware they may be eligible to claim. A further 11% cited concerns around compliance or risk and another 12% felt the process was too complex.
Paul Cox, Partner Corporate Tax for Crowe UK comments:
My take
Taken together, the findings suggest manufacturers are increasingly looking to technology to improve productivity and competitiveness at a time when human recruitment remains difficult. The paradox here is that while concerns about AI’s impact on jobs tend to dominate the public debate, the data from this research points to a sector adopting new technologies while still struggling to find enough skilled workers. To my mind this research provides more evidence that the UK needs to activate big re-training/apprenticeship schemes and it needs them now, not in a year’s time.
