CSA’s predictions for 2025

Interest rates are gradually decreasing, reassuring businesses about debt costs and gearing. Raised employer National Insurance and the minimum wage will, of course, impact profits. However, the Capital Gains Tax rate increase was less than feared, offering some comfort for those considering business sales or purchases.

We anticipate cautious growth and investment for 2025. Trading conditions will remain sluggish without firm economic traction, amid ongoing geopolitical tensions and the spectre of increased protectionism. Challenges will persist for businesses, particularly SMEs, in a low-growth, high-cost environment, but some sectors may buck the trend:

Predictions for 2025

Government spending will extend the UK’s infrastructure to the regions

Labour’s commitment to infrastructure investment in green energy, intra-city transport links and road maintenance should boost demand for construction industry manpower, plant and equipment and base materials. Plans for the national grid involve a shift of focus for the transmission network from fossil fuel extraction to wind farms and renewables. The government aims to quadruple offshore wind, triple solar and double onshore wind by the end of the decade, targeting 95% clean energy for the UK’s electricity. Investment in new generation capacity could double the power flow across the country, allowing data centres, gigafactories and other large industrial users to connect directly to the grid, creating expansion opportunities in previously restricted regional areas.

AI and robotics will accelerate functional efficiency and productivity

Digital data science applications will accelerate automation software growth in management services and advanced robotic manufacturing, benefiting cost management, production efficiency, quality control and regulatory compliance. However, as AI machine learning becomes more sophisticated, phishing and deepfake attacks will become harder to detect, increasing demand for advanced cybersecurity systems that not only defend against an immediate threat, but also forewarn of unusual user or device behaviour.

Warehousing will remain a bright spot in a lacklustre real estate sector

Property values may have stabilised now interest rates are slowly trending down, though a turnaround may still be some time away. Commercial warehousing and logistics real estate have remained comparative bright spots on the back of the twin drivers of online retail order fulfilment and the repatriation of overseas supply chains. But working-from-home has left some city-centre offices devoid of personnel, prompting down-sizing. Housebuilders in 2024 are on track to build the fewest new homes for sale in a decade, having pulled back from buying land and opening new sales sites. Despite government plans to increase supply, housing is likely to remain slow in 2025 in line with low inventory, sticky planning approval procedures and higher costs.

NHS spending will target waiting lists, but demographics shape long-term health service demand

Public funds will be allocated to reduce NHS patient waiting lists. Whilst this will uniformly lift health services consumption, we anticipate the greatest rise in demand in segments driven by the changing demographics of the country. Demand will be sustained in areas such as ophthalmology and audiology, where an aging population will increasingly require eyewear, hearing aids and clinical examination services available on the high street and through specialist clinics. As the population continues to gain weight, becoming obese, this trend will fuel lasting demand for weight-loss behavioural intervention services, bariatric surgery and pharmacotherapy.

Slow organic growth will trigger bolt-on acquisitions to drive value in 2025

Many businesses muted their growth and expansion ambitions in 2024, and financial sponsors experienced longer hold periods from aging portfolios. Should the doldrums continue in 2025, we anticipate that companies and investors will seek acquisitions to drive value. The greatest mergers and acquisitions interest will be given to bolt-on opportunities affording opportunities for buyers to extend capabilities, expand into new geographies and ultimately drive cross-sales and up-selling.

The GBP/EUR rate hit a 3½ year high in December 2024. We anticipate that the positive momentum of the Pound will continue into 2025, as the Bank of England takes a more cautious stance on monetary policy than the European Central Bank. This could be good news for UK business seeking acquisitions in Europe at a time when the sitting political administration may be looking to rekindle its relationship with the EU.

CSA’s strategy and due diligence advisory services sit alongside and complement the day-to-day activities of company management and financial backers. We provide independent and objective evaluations of strategic direction and value creation, providing a road map for business growth and performance improvement.

For information about how we can help you to assess business and market attractiveness please call: 0208 947 5108