The State of UK Markets in 2025

The UK economy heads into 2025 with a mix of relief and restraint. Inflation, which peaked at over 11% in late 2022, has fallen sharply, with the Bank of England projecting it will settle near its 2% target by mid-year.¹ At the same time, interest rates remain at a 16-year high of 5.25%, putting pressure on mortgages, credit, and corporate borrowing.²

Growth is sluggish. The Office for Budget Responsibility forecasts UK GDP to expand just 0.8% in 2025, lagging both the US and the eurozone.³ Business investment has picked up slightly after years of Brexit uncertainty, but it remains below pre-2016 trends. Exports to the EU are still hampered by friction at borders, with the British Chambers of Commerce reporting that 56% of exporters face ongoing difficulties with customs and compliance.⁴

Yet it isn't all negative. Employment has remained resilient, with unemployment hovering near 4%, one of the lowest in Europe.⁵ The pound has stabilized after years of volatility, trading steadily against both the dollar and the euro. London's financial sector continues to attract global capital, especially in fintech and green finance. Venture funding in UK startups reached £27 billion in 2024, second only to the US in global rankings.⁶

For small and medium enterprises, the environment is a balancing act. On one side: tighter financing and softer consumer demand. On the other: lower inflation, a strong labor market, and digital transformation opportunities. Government incentives for clean tech and AI adoption, launched in the 2024 Autumn Statement, add some tailwinds for forward-looking firms.⁷

The big question is whether the UK can break out of its low-growth cycle. Structural issues — from productivity stagnation to trade friction — remain unresolved. For business leaders, the smart approach is selective optimism: invest in areas with government support and consumer momentum, while staying cautious about long-term borrowing and exposure to EU trade hurdles.