UK electronics sales fall as margins strengthen in Q3

UK electronics manufacturers saw sales fall in the third quarter of 2025 but reported stronger margins, as firms cut stock levels and shortened lead times in response to weaker demand, according to new industry data.

Small and mid-sized electronics firms generated average sales revenue of £379,262 in the quarter. This marked a 5.5% decline on the previous three months and a 2% fall on the same period a year earlier.

Profitability, measured by Gross Margin Percentage (GMP), stood at 41%. This was 3.7 percentage points lower than the previous quarter. It was 6.4 percentage points higher than in the third quarter of 2024.

The figures come from a quarterly manufacturing index compiled by Unleashed, an inventory management platform owned by The Access Group. The report draws on data from more than 600 UK manufacturers that use the software, including electronics producers and firms in sectors such as food and drink, clothing and construction.

Margins recover

The data indicates that electronics manufacturers adjusted their operations during the period. Purchase orders fell 17.4% quarter on quarter. Stock on hand dropped 39% over the same period.

Average lead times declined from 20 days in the second quarter to 14 days in the third. This represented a 30% quarter-on-quarter reduction.

Unleashed's parent company said electronics firms had responded quickly to a softening demand environment and ongoing cost pressures.

"The last quarter was characterised by a determined push towards efficiency," said Joe Llewellyn, GM of ERP Small Business, The Access Group.

He said manufacturers had changed their purchasing and inventory strategies during the quarter.

"Although sales dropped, manufacturers responded quickly to lessen the impact. Our data shows purchasing and lead times were both down quarter on quarter, a sign of weakened demand reflected in the contracted PMI for this period. This, along with ongoing cost pressures, prompted electronics manufacturers to move from cautious 'Just in case' stock building in Q2 to a leaner just in time approach, cutting their margins and stock on hand to protect their margins and cash flow," said Llewellyn.

Shift in stock strategy

The report suggests a marked shift away from the inventory-heavy strategies that many firms adopted earlier in the year as they navigated supply chain uncertainty. In the electronics category, the combination of lower purchase orders and reduced stock on hand points to closer alignment between inventory and demand.

Shorter lead times indicate that electronics manufacturers adjusted their supplier relationships or production schedules. The reduction in lead times coincided with improved gross margins on a year-on-year basis.

The Manufacturing Health Index now tracks profitability using Gross Margin Percentage instead of Gross Margin Return on Investment used in earlier editions. The metric captures the share of sales revenue that remains after direct costs of goods sold and offers a unit-level view of profitability for smaller manufacturers.

The switch in profitability metric does not factor in direct wages, which are often included in broader gross profit calculations. The index therefore focuses on product-level performance rather than full business income statements.

Electronics underperform headline trend

While electronics manufacturers reported weaker sales, the wider manufacturing cohort in the Unleashed dataset recorded growth in the quarter. Across all categories, firms saw a 12.9% quarter-on-quarter increase in sales.

Overall GMP across the full sample rose by 1.3 percentage points to 39.66%. Purchase orders for the wider manufacturing group dropped by 30% quarter on quarter. Stock on hand declined by 27.2%. Average lead times decreased by eight days.

Other categories such as electrical goods also recorded a combination of lower sales and higher year-on-year profitability. This indicates a common focus on efficiency and cost control across several manufacturing segments, even where demand softened.

The electronics subset sat below the overall sales trend but ahead on profitability. The segment's 41% gross margin exceeded the cross-category average, despite the quarterly decline.

Data-led outlook

Llewellyn said electronics manufacturers would continue to face a low-growth and high-cost backdrop. He highlighted a growing emphasis on data use and automation across the sector.

"Going into 2026, electronics manufacturers will need to make the most of data to enable forecast-driven replenishment, track landed costs in real-time, and identify and convert excess stock into cash. Doing more with less is the new reality, seen in the continued trend in industrial automation," said Llewellyn.