Four in five manufacturers embrace AI as defence work offers route to growth - report

Four in five UK manufacturers have adopted or are trialling artificial intelligence, while nearly three-quarters are engaged in, or exploring, defence work, according to a new industry report.

Crowe's latest Manufacturing Outlook Report, produced with the Confederation of British Metalforming (CBM), found 80 per cent of firms are using or testing AI, up from 52 per cent in the accountancy and advisory firm's Spring 2025 survey.

Some 72 per cent are involved in or looking at defence manufacturing.

Crowe said the sector offers a route to growth for firms with the capacity, compliance standards and technical expertise to serve it, and could allow suppliers hit by pressure on the UK's automotive sector to diversify.

Hayley Lavery (pictured), corporate partner in Crowe's Midlands offices in Birmingham and Oldbury, said: “Manufacturers across the Midlands continue to demonstrate the resilience and adaptability that have long underpinned the region's industrial strength.

“While rising costs and skills shortages remain significant challenges, businesses are increasingly embracing AI and exploring opportunities within the defence supply chain to support future growth.

“With its deep engineering expertise and rich manufacturing heritage, the Midlands is well placed to capitalise on these opportunities and play a leading role in the sector's next phase of growth.”

Cost pressures remain the biggest barrier, cited by 57 per cent of respondents.

Higher wages, employer National Insurance contributions and energy prices are squeezing margins and making investment decisions harder.

Skills shortages are the main recruitment challenge for 62 per cent of firms, marginally down from 64 per cent in the Spring 2026 report. Crowe also warned of a succession problem as experienced engineers and technicians approach retirement.

Other findings include:

• 43 per cent fund growth from internal cash reserves, down from 82 per cent in Spring 2026
• 37 per cent have successfully claimed R&D tax relief
• 65 per cent have received carbon footprint or energy-efficiency requests from customers
• 71 per cent are open to reshoring, down from 98 per cent in Spring 2026

Stuart Weekes, partner and head of manufacturing at Crowe, said: “The opportunity now is to convert the industry's resilience into sustainable growth through investment, innovation, skills development and technology adoption.”