Fine Chemicals Sector 2025. Sectoral systems of innovation and the UK’s competitiveness
File(s)
Author(s)
Shah, Nilay
Doliente, Stephen
Hallett, Jason
Hellgardt, Klaus
Barlow, James
Type
Report
Abstract
Executive Summary
We are extremely grateful to Lord David
Sainsbury and the Gatsby Charitable Foundation
for generously supporting this sectoral study
of the fine chemicals industry. It is a sector with
significant contributions to the UK’s economy
(both directly and by underpinning other sectors)
but is facing multiple challenges within and
outside the UK. As such, it deserves a closer
inspection of its status and the development
of potential interventions. We aimed to provide
a diagnosis of the industry by looking at its
landscape, productivity, skills requirements,
technology, innovation, business, and regulatory
environment. We coupled these with deep dives
with UK chemical industry organisations to
support our findings. Based on these analyses
and stakeholder engagements, we developed
our high-level conclusions, recommendations to
stakeholders, and areas of further detailed study.
Our key conclusions so far are the following:
• The global fine chemicals industry is a thriving and
growing industry marked by a competitive market,
wherein the major players dominate at 40% to 45%.
Most of the fine chemicals businesses are involved
in manufacturing (80% of the market). Having R&D
capabilities, manufacturing expertise & efficiency,
supply chain management, global presence reach,
and regulatory compliance are crucial competitive
advantages in the global landscape.
• Being the birthplace of fine chemicals, the UK’s industry
has been well-established with highly diversified
products. The UK’s fine chemicals sector interlinks its
own bulk (or commodity) chemicals industry to various
end-use sectors within the country and internationally.
Our estimates show that fine chemicals contribute 40%
of the GDP value of chemical manufacturing (£11bn to
£12bn), which is commonly reported.
• The UK’s broad chemicals industry (bulk + fine), while
significant, has struggled with consistent productivity
growth since the global financial crisis. The industry’s
international competitiveness, particularly against
countries like China and India, is being challenged by
high energy prices, raw material shortages, and skilled
labour shortages. Zooming in on the UK fine chemicals
sector, it may in principle be insulated from these
challenges due to its nature of business and the high
value of its products. Drivers of productivity growth
in the fine chemicals industry include technology
and product innovation and scaling up, meeting skills
requirements, an enabling business environment,
and an enabling policy and regulatory environment.
• Our calculations show that the UK’s fine chemicals
industry has a Gross Value Added (GVA) of £33 billion
and employs over 231,000 people, which translates into
a labour productivity of £143,000 per employee as of
2024. The top five contributing subsectors are Catalysts,
Contract chemicals, Specialty polymers, Pigments &
dyes, and Construction chemicals. This highlights the
fine chemicals sector’s importance, beyond its own KPIs,
as it underpins other key industries of the UK including
pharmaceuticals, agrochemicals, fast-moving consumer
goods, automotive, aerospace, and building and
construction.
• The fine chemicals industry primarily uses chemical
synthesis and biotechnology, with chemical synthesis
being the focus of this report due to its extensive toolbox
of available reactions. Fine chemicals production typically
occurs in multi-purpose batch plants, which are designed
to handle various chemical reactions and synthesis,
and purification steps, allowing for efficient production
of a diverse range of products. These plants, while
costly, offer flexibility and cost-effectiveness, especially
when compared to dedicated plants for each product.
Key technology innovation and scale-up requirements
include competency in synthesising complex fine
chemicals, flexible manufacturing, process intensification,
and increasing biotechnology integration. Drivers of
innovation include product design, sustainability, the
net-zero transition, biomass conversion, and synthetic
biology. Digital technologies are another driver that will
revolutionise sustainable manufacturing of fine chemicals
whilst increasing efficiency and reducing costs. Lastly, the
battery industry is another technology innovation driver,
which driven by the net-zero transition, will create demand
for innovative fine chemicals.
• The current UK chemical industry requires skilled
workers, particularly technicians with level 3 to level 5
qualifications. There is a shortage of a skilled workforce
due to a “lost generation” and labour shortages. While the
industry currently relies on external labour markets and
in-house training, future skills requirements must be met;
these include topics such as chemistry and engineering
innovation, data analysis, and leadership, which are
going to be crucial for addressing complex commercial
challenges and opportunities brought about by the
UK’s net-zero commitment and the advent of Industry
4.0. These emerging skills requirements reflect a
transitioning chemicals industry requiring new thinking
and strong leadership.
• Business-to-business transactions, custom
manufacturing, and R&D-driven fast-to-market
products are integral in doing fine chemicals
business. Considering these, enabling mechanisms
for the UK fine chemicals sector include strategic
procurement, government-supported logistics,
market access support, prioritising IP ownership,
and SME acceleration. These mechanisms aim
to drive innovation, competitiveness, and economic
growth within the sector.
• Fine chemical manufacturers, both globally and in
the UK, are subject to a range of regulations, including
the Registration, Evaluation, Authorisation and Restriction
of Chemicals (REACH). While the UK REACH is largely
aligned with the EU REACH, its potential divergence of
standards and processes from internationally accepted
regulations may pose additional overhead compliance
and hamper trade, considering how chemical value chains
are integrated across the globe. A new development in
the EU is that of “Safe and Sustainable by Design” which
may create additional opportunities for innovation in
new chemicals and materials while also subjecting
these to increased scrutiny.
• Our deep dives with organisations in the UK’s
chemical industry revealed insights that resonated
with our review and analysis, to date. According to
the Chemical Industry Association (CIA), the UK fine
chemicals industry faces challenges including energy
and feedstock costs, consistent sustainability reporting,
and a skills gap. CIA recommends streamlining
regulations, supporting alternative feedstocks, and
regionalising policies as pathways toward better
international competitiveness of the industry. On the
other hand, the Society of Chemical Industry (SCI)
reported that the UK chemical industry faces challenges
in policy coordination and investments, despite its
historical importance and innovations. SCI recommended
that the UK must address industry structure, energy
productivity, and regulatory alignment to capitalise on
growth opportunities, especially from new chemistries
and circular carbon, and overcome threats. Lastly,
The Centre for Process Innovation (CPI) stated that
the challenges of the UK chemical industry are due
to declining domestic production and reliance on
global supply chains. CPI recommended, to improve
competitiveness, the UK should incentivise platform
chemicals production, support disruptive technology
adoption, and bridge the gap between academic
research and industry application.
We believe our recommendations to stakeholders
(academia, industry, and government) are going to
be a collective and collaborative effort. These can
be grouped into six interconnected priorities to
form a robust enabling ecosystem for the UK’s
fine chemicals sector.
Priority 1. Sector strategy planning:
An agreed industry-led sector strategy is vital to
address immediately the short-term challenges and
create a supportive ecosystem in the long term.
Priority 2. Economic and business development:
An enabling chemical business environment to
enhance the industry’s GVA and grow its global
competitiveness.
Priority 3. Regulation and policy:
A more streamlined policy environment to prevent
deviations from international standards and to foster
innovations creating a competitive edge.
Priority 4. Skills:
A skills roadmap to meet both the skill required
now, and the skills required in the future to ensure
a globally competitive workforce.
Priority 5. Innovation:
A strong focus on the R&D of product innovation,
flexible manufacturing and process intensification
whilst ensuring the IP developed is exploited first
within the UK.
Priority 6. Mindset change:
A need for greater recognition of our home-grown
chemicals industry in terms of its importance and
role in everyday life of British citizens.
We are extremely grateful to Lord David
Sainsbury and the Gatsby Charitable Foundation
for generously supporting this sectoral study
of the fine chemicals industry. It is a sector with
significant contributions to the UK’s economy
(both directly and by underpinning other sectors)
but is facing multiple challenges within and
outside the UK. As such, it deserves a closer
inspection of its status and the development
of potential interventions. We aimed to provide
a diagnosis of the industry by looking at its
landscape, productivity, skills requirements,
technology, innovation, business, and regulatory
environment. We coupled these with deep dives
with UK chemical industry organisations to
support our findings. Based on these analyses
and stakeholder engagements, we developed
our high-level conclusions, recommendations to
stakeholders, and areas of further detailed study.
Our key conclusions so far are the following:
• The global fine chemicals industry is a thriving and
growing industry marked by a competitive market,
wherein the major players dominate at 40% to 45%.
Most of the fine chemicals businesses are involved
in manufacturing (80% of the market). Having R&D
capabilities, manufacturing expertise & efficiency,
supply chain management, global presence reach,
and regulatory compliance are crucial competitive
advantages in the global landscape.
• Being the birthplace of fine chemicals, the UK’s industry
has been well-established with highly diversified
products. The UK’s fine chemicals sector interlinks its
own bulk (or commodity) chemicals industry to various
end-use sectors within the country and internationally.
Our estimates show that fine chemicals contribute 40%
of the GDP value of chemical manufacturing (£11bn to
£12bn), which is commonly reported.
• The UK’s broad chemicals industry (bulk + fine), while
significant, has struggled with consistent productivity
growth since the global financial crisis. The industry’s
international competitiveness, particularly against
countries like China and India, is being challenged by
high energy prices, raw material shortages, and skilled
labour shortages. Zooming in on the UK fine chemicals
sector, it may in principle be insulated from these
challenges due to its nature of business and the high
value of its products. Drivers of productivity growth
in the fine chemicals industry include technology
and product innovation and scaling up, meeting skills
requirements, an enabling business environment,
and an enabling policy and regulatory environment.
• Our calculations show that the UK’s fine chemicals
industry has a Gross Value Added (GVA) of £33 billion
and employs over 231,000 people, which translates into
a labour productivity of £143,000 per employee as of
2024. The top five contributing subsectors are Catalysts,
Contract chemicals, Specialty polymers, Pigments &
dyes, and Construction chemicals. This highlights the
fine chemicals sector’s importance, beyond its own KPIs,
as it underpins other key industries of the UK including
pharmaceuticals, agrochemicals, fast-moving consumer
goods, automotive, aerospace, and building and
construction.
• The fine chemicals industry primarily uses chemical
synthesis and biotechnology, with chemical synthesis
being the focus of this report due to its extensive toolbox
of available reactions. Fine chemicals production typically
occurs in multi-purpose batch plants, which are designed
to handle various chemical reactions and synthesis,
and purification steps, allowing for efficient production
of a diverse range of products. These plants, while
costly, offer flexibility and cost-effectiveness, especially
when compared to dedicated plants for each product.
Key technology innovation and scale-up requirements
include competency in synthesising complex fine
chemicals, flexible manufacturing, process intensification,
and increasing biotechnology integration. Drivers of
innovation include product design, sustainability, the
net-zero transition, biomass conversion, and synthetic
biology. Digital technologies are another driver that will
revolutionise sustainable manufacturing of fine chemicals
whilst increasing efficiency and reducing costs. Lastly, the
battery industry is another technology innovation driver,
which driven by the net-zero transition, will create demand
for innovative fine chemicals.
• The current UK chemical industry requires skilled
workers, particularly technicians with level 3 to level 5
qualifications. There is a shortage of a skilled workforce
due to a “lost generation” and labour shortages. While the
industry currently relies on external labour markets and
in-house training, future skills requirements must be met;
these include topics such as chemistry and engineering
innovation, data analysis, and leadership, which are
going to be crucial for addressing complex commercial
challenges and opportunities brought about by the
UK’s net-zero commitment and the advent of Industry
4.0. These emerging skills requirements reflect a
transitioning chemicals industry requiring new thinking
and strong leadership.
• Business-to-business transactions, custom
manufacturing, and R&D-driven fast-to-market
products are integral in doing fine chemicals
business. Considering these, enabling mechanisms
for the UK fine chemicals sector include strategic
procurement, government-supported logistics,
market access support, prioritising IP ownership,
and SME acceleration. These mechanisms aim
to drive innovation, competitiveness, and economic
growth within the sector.
• Fine chemical manufacturers, both globally and in
the UK, are subject to a range of regulations, including
the Registration, Evaluation, Authorisation and Restriction
of Chemicals (REACH). While the UK REACH is largely
aligned with the EU REACH, its potential divergence of
standards and processes from internationally accepted
regulations may pose additional overhead compliance
and hamper trade, considering how chemical value chains
are integrated across the globe. A new development in
the EU is that of “Safe and Sustainable by Design” which
may create additional opportunities for innovation in
new chemicals and materials while also subjecting
these to increased scrutiny.
• Our deep dives with organisations in the UK’s
chemical industry revealed insights that resonated
with our review and analysis, to date. According to
the Chemical Industry Association (CIA), the UK fine
chemicals industry faces challenges including energy
and feedstock costs, consistent sustainability reporting,
and a skills gap. CIA recommends streamlining
regulations, supporting alternative feedstocks, and
regionalising policies as pathways toward better
international competitiveness of the industry. On the
other hand, the Society of Chemical Industry (SCI)
reported that the UK chemical industry faces challenges
in policy coordination and investments, despite its
historical importance and innovations. SCI recommended
that the UK must address industry structure, energy
productivity, and regulatory alignment to capitalise on
growth opportunities, especially from new chemistries
and circular carbon, and overcome threats. Lastly,
The Centre for Process Innovation (CPI) stated that
the challenges of the UK chemical industry are due
to declining domestic production and reliance on
global supply chains. CPI recommended, to improve
competitiveness, the UK should incentivise platform
chemicals production, support disruptive technology
adoption, and bridge the gap between academic
research and industry application.
We believe our recommendations to stakeholders
(academia, industry, and government) are going to
be a collective and collaborative effort. These can
be grouped into six interconnected priorities to
form a robust enabling ecosystem for the UK’s
fine chemicals sector.
Priority 1. Sector strategy planning:
An agreed industry-led sector strategy is vital to
address immediately the short-term challenges and
create a supportive ecosystem in the long term.
Priority 2. Economic and business development:
An enabling chemical business environment to
enhance the industry’s GVA and grow its global
competitiveness.
Priority 3. Regulation and policy:
A more streamlined policy environment to prevent
deviations from international standards and to foster
innovations creating a competitive edge.
Priority 4. Skills:
A skills roadmap to meet both the skill required
now, and the skills required in the future to ensure
a globally competitive workforce.
Priority 5. Innovation:
A strong focus on the R&D of product innovation,
flexible manufacturing and process intensification
whilst ensuring the IP developed is exploited first
within the UK.
Priority 6. Mindset change:
A need for greater recognition of our home-grown
chemicals industry in terms of its importance and
role in everyday life of British citizens.
Date Issued
2026-10-19
Citation
2026, pp.1-55
Publisher
Imperial College London
Start Page
1
End Page
55
Copyright Statement
© 2026 The Author(s).
Subjects
centre for sectoral economic performance
competitiveness
fine chemicals
innovation
sector
Publication Status
Published