Rolls-Royce weighs overseas production of narrow-body engines as UK energy costs bite

Rolls-Royce is weighing where to develop and manufacture a new range of jet engines for narrow-body aircraft, including options in Germany or the United States rather than Britain. The move would come as the Derby-based group faces mounting pressure from energy costs and political headwinds linked to Labour’s industrial strategy. The proposed programme could support as many as 40,000 jobs across Rolls-Royce and its suppliers, according to people familiar with the matter, underscoring its potential economic significance for the country’s manufacturing base.

The project is focused on re-entering the narrow-body market, which powers planes such as the Airbus A320 and accounts for a substantial portion of global air travel. Industry figures put the market for narrow-body engines at roughly £1.6 trillion globally. The programme would involve about £3 billion in research and development costs, and Rolls-Royce has argued it could deliver a sizable boost to the UK economy—optimists say the venture could generate more than £100 billion in UK value over time.

Rolls-Royce remains in talks with the government about financial backing for the project, but the company has indicated a preference to pursue development in Britain under the pressure of investor expectations and its own strategic aims. People familiar with the discussions say there are “plenty of options” outside the UK, including Germany and the United States, where energy costs are cheaper and the company already operates manufacturing sites. The discussions have raised questions about whether taxpayer support—likely in the hundreds of millions of pounds—will be forthcoming to sustain Britain’s ambitions in the sector.

The potential relocation would be viewed as a body blow to Britain, echoing other high-profile setbacks for Labour’s industrial agenda. The development would come as the UK seeks to maintain momentum in a sector that has faced headwinds from rising energy prices and broader global competition. Earlier headwinds cited in media reports include AstraZeneca’s decision to scrap a planned £450 million vaccine plant on Merseyside and the Channel Tunnel operator’s cancellation of future investments in the UK, attributed in part to a higher tax environment.

Rolls-Royce declined to comment on the reports yesterday. Labour has framed narrow-body jet engines as a central pillar of its industrial strategy, aiming to spur UK manufacturing and technological leadership. Rolls-Royce presently derives its core strength from wide-body engines for long-haul aircraft, having exited the narrow-body market roughly a decade ago. Re-entering that market would represent a significant strategic shift for the company and for UK aerospace policy.

Observers note that the UK’s energy-cost landscape remains a serious challenge for heavy industry. A Santander-backed assessment cited in industry discussions shows electricity prices in the UK are about 50% higher than in Germany and France, and roughly four times those in the United States. The report attributed much of the differential to policy decisions around North Sea resources and the broader energy-transition path, contributing to a higher cost base for British manufacturers.

In response, government allies argue that the UK’s aerospace sector remains highly competitive and that Rolls-Royce has a pivotal role to play. A spokesperson for the Department for Business and Trade said the UK “has one of the world’s most competitive aerospace sectors,” and that Rolls-Royce is expected to continue to be a key player in the industry. The department has emphasized the need to balance national industrial strategy with a favorable business environment as global competition intensifies.

As the industry weighs its options, investors and policymakers will watch closely how Rolls-Royce’s course could influence the UK’s manufacturing landscape, regional employment, and the government’s ability to attract and retain capital-intensive projects. The outcome could have implications beyond Rolls-Royce, shaping the trajectory of UK industrial policy and the country’s positioning in a global aerospace market valued in the trillions of dollars.