More than half (51.7%) of UK electrical manufacturers expect demand to be the biggest constraint on output in the coming quarter, according to BEAMA’s Q1 2026 Market Pulse, as business confidence fell to its lowest level since Q1 2020. The quarterly survey found business confidence fell 40 points in one quarter, from +12 in Q4 2025 to -28 in Q1 2026, while demand overtook supply chain disruption, raw material prices and labour availability as the sector’s biggest concern.

Yselkla Farmer, CEO of BEAMA, said: “Manufacturers continue to invest because they believe in the long-term future of electrification, but the scale of investment depends on demand. For the first time in years, we’re seeing the heat pump market stall, an early warning sign that weak consumer uptake of electrification is starting to weigh on investment confidence across both heat technologies and electricity networks.”

“Government has taken an important step by publishing its draft Strategic Policy Guidance for electricity networks, recognising the need for regulation that better supports growth, investment and the supply chain. That progress must now be matched by a clear and consistent approach to electrification policy. Recent decisions on Ofgem’s ED3 methodology underline how important it is that the regulatory framework gives businesses and network operators the confidence to invest ahead of need.

“We now need urgent action to remove the barriers to electrification, including addressing the cost imbalance between electricity and fossil fuels. Greater consumer uptake will give manufacturers and network operators the confidence to invest, helping us accelerate electrification, strengthen energy security and deliver net zero.”

 

Construction-linked sectors report weakest outlook

Manufacturers supplying the construction sector recorded the weakest business confidence in the survey. Those in the Building Electrical Systems sector reported a confidence balance of -66.7, while manufacturers of Heating & Ventilation solutions recorded -50. Both sectors reported flat sales during the quarter, reflecting continued challenges in the construction sector. Manufactures in Electrical Transport Systems and Smart Energy Systems also reported a negative confidence balance of -30.8 but a small increase in sales of 15.4%.

By contrast, manufacturers in the Electricity Networks Infrastructure (ENI) sector were the only group to record positive business confidence (+11.1), supported by continued investment in the UK’s electricity grid. The sector also recorded the strongest sales balance (+66.7). However, ENI manufacturers warned about rising material costs and supply chain disruption.

 

Manufacturers have capacity to grow, but need stronger demand

Average capacity utilisation remained unchanged from Q3 and Q4 2025, at 75%, slightly below the five-year average and below the 80% level last reached in 2021. This suggests manufacturers have the capacity to scale up production as demand recovers. However, low utilisation means existing investment may not yet be generating the returns needed to support future growth.

 

Manufacturers plan to recruit and invest

Despite the weaker outlook, manufacturers continue to report positive recruitment and investment intentions, reflecting continued desire to grow where possible.. Planned recruitment and investment over the next 12 months both recorded balances of +47. Investment intentions over the longer term (5 years) are still positive but declined 2 points from +70 to +68. The top three areas for investment in the 5 years ahead are plant and equipment (80.8%) followed by e-business which includes AI (80%), and product improvement (76%).

 

Global cost pressures continue

Alongside weaker demand, manufacturers reported growing concern about rising raw material costs and continued disruption across global supply chains. Component and material supply was identified by 17.2% of respondents as the biggest potential constraint on output after demand, while 10.3% cited raw material prices and a further 10.3% pointed to labour availability. Manufacturers also highlighted the impact of conflict in the Middle East, freight disruption and increasing prices for copper, steel, aluminium and brass. While materials generally remained available, manufacturers said rising material prices had become a greater concern than availability.