Rolls-Royce threatens to shift new engine project from UK due to high energy costs

Rolls-Royce is actively considering relocating its planned narrow-body jet engine manufacturing program—a project expected to generate 40,000 jobs across the company and its supply chain—to either the United States or Germany, citing surging UK energy costs as a primary deterrent. The Derby-based FTSE 100 aerospace firm is seeking to re-enter the lucrative narrow-body engine market, valued globally at £1.6 trillion, supplying powerplants for short-haul aircraft like the Airbus A320, a segment Rolls-Royce exited a decade ago. While CEO Tufan Erginbilgic reportedly prefers development in Britain, the company is weighing options outside the UK where manufacturing costs, particularly electricity, are significantly lower.

The decision hinges on securing hundreds of millions of pounds in financial support from the UK government toward the project’s estimated £3 billion research and development costs. Rolls-Royce projects the business could generate over £100 billion for the UK economy if based domestically. However, without adequate taxpayer backing, the company is prepared to utilize existing manufacturing sites in Germany or the US, two countries where energy prices are reportedly 50% cheaper than in the UK and four times cheaper than in the US, according to a recent Santander report.

The potential relocation represents a significant political setback for the UK government, particularly as the narrow-body engine development was identified as a core component of the Labour party’s industrial strategy. This situation mirrors recent business departures, including AstraZeneca scrapping a major vaccine plant. Industry experts warn that the UK manufacturing sector remains under severe strain due largely to high energy bills, fueling fears that rising operational costs are driving major corporations overseas.