SUMMARY: The economic landscape of the United Kingdom is undergoing a pivotal moment as it enters 2025, with moderate GDP growth anticipated and a hopeful resurgence in its capital markets. While the UK economy is set to grow at a faster pace than its European peers, it lags behind the robust performance expected in the United States and Canada. Central to this transformation are strategic reforms targeting the UK’s capital markets, fiscal policies and investment frameworks, providing both opportunities and challenges.
A Slow Yet Steady Recovery
The UK economy is expected to achieve GDP growth of approximately 1.5% in 2025, rebounding from weaker growth in prior years. This performance positions it slightly ahead of major Eurozone economies like France and Germany but behind the US, which continues to enjoy buoyant conditions thanks to expansionary fiscal policies. Driving this improvement are increased government spending, easing inflationary pressures and stabilising political conditions.
Yet, households are unlikely to feel substantially better off. Stubborn inflation, projected to remain above the Bank of England’s 2% target, combined with stagnant wage growth and rising unemployment, will limit disposable income growth. These factors present a mixed picture, where macroeconomic recovery does not translate uniformly across sectors or demographic groups.
The Revival of UK Capital Markets
A significant narrative underpinning 2025 is the ongoing effort to rejuvenate London as a global hub for capital markets. Overhauls to the listing regime introduced in 2024 have reduced barriers to IPOs, including easing requirements for a track record of profitability and loosening restrictions on dual-class share structures. Additional reforms expected this year, such as higher thresholds for publishing prospectuses during secondary fundraises, could further energise listings.
Equally important is the role of UK pension schemes, which currently allocate a mere 4.4% of their assets to domestic equities compared to a global average of 10%. Consolidating these schemes into larger, more agile entities, as planned by the government, could unlock significant capital, particularly for high-growth sectors like fintech and clean technology.
Sectoral Insights
Key sectors are positioned to capitalise on the shifting dynamics. UK housebuilders, for instance, represent a notable opportunity, with lower interest rates and government support policies expected to spur demand. Shares in companies like Barratt and Persimmon have demonstrated resilience, and valuations suggest substantial upside potential. The FTSE 100 could even achieve new record highs in 2025 if macroeconomic tailwinds align with these sectoral trends
Simultaneously, the regulatory launch of a “private stock market” under the PISCES framework is poised to redefine liquidity and investor access for unlisted companies. This innovation, modelled after US platforms like Nasdaq Private Markets, should attract private firms to remain and grow domestically while offering investors alternative routes to value creation.
Challenges on the Horizon
Despite these initiatives, structural weaknesses persist. Labour market inefficiencies, subpar productivity growth and Brexit’s lingering effects continue to cast long shadows over the UK’s economic prospects. While government policies aim to offset these headwinds, concerns over increasing public debt, higher taxes and global geopolitical risks remain significant.
Moreover, the valuation and liquidity gaps between the London Stock Exchange and its US counterparts highlight the importance of investor sentiment and capital flow dynamics. For the UK, successfully luring more high-growth listings and maintaining capital inflows will hinge on demonstrating the global competitiveness of its market structure.