In recent years, business leaders have mastered the ability to remain comfortable with uncertainty and doubts about the future. This resilience bodes well as 2025 approaches.
The global macroeconomic landscape may grow more unpredictable still as Donald Trump prepares for his second term in the White House. Other trends, such as geopolitical risk – named as the biggest threat to businesses for a third successive year by Saïd Business School – will continue to disrupt markets and supply chains.
In the next year, organisations can expect to see several changes that may impact their business as well as their workforces, including shifts in their employer national insurance contributions, increases in capital gains taxes and changes in tax incentives and investments.
There is a silver lining, however. The global economy is projected to remain resilient despite significant challenges, according to the Organisation for Economic Co-operation and Development’s latest Economic Outlook. The report projects global GDP growth of 3.3% in 2025, up from 3.2% in 2024.
The road to economic recovery
Political risk has been especially acute for global financial markets in 2024, with some 40 countries holding elections this year. Businesses witnessed how a change in government can impact a country’s currency or stock market, for better or worse. Since French President Macron called an early election in June, the CAC index has not recovered while Trump’s victory in the US election saw stock markets soar.
In 2025, however, businesses are anticipating a more stable political landscape and with it greater clarity on economic policies, says Simone Nardi, CFO at global recruitment firm G-P. “2025 is set to be a year of economic recovery and growth for the UK,” Nardi says. “With prime minister Keir Starmer’s recent announcement for his six long-term goals focused on improved living standards and investment in the housing market, the outlook is currently strong.”
The UK’s GDP is forecast to grow by 2% in 2025, driven by reduced inflation and a potential easing of interest rates. These are expected to settle at 2% by mid-2025, according to the Bank of England. This will be a cautious approach, however, as the bank continues to assess the inflationary impact of Labour’s £40bn tax-raising budget.
“The UK’s macroeconomic environment in 2025 will be shaped by recovery-focused fiscal policies and a shift toward innovation and technology,” Nardi says. “Businesses that adapt by investing in digital transformation and workforce development will be best positioned to capitalise on these trends.”
Tax hikes will be a short-term pain
Businesses have now had some time to digest Labour’s budget. Chancellor Rachel Reeves’ decision to increase capital gains tax and raise employer national insurance contributions to 15% is an unwelcome cost for many.
“With staffing costs on the rise, businesses will face additional financial strain and they may have to find some form of operational efficiency,” says Simon Heath, a partner at UK investment firm Heligan Group. “Investment will slow and companies will press pause on expansion plans and recruitment efforts. In some sectors, I expect there will also be a rapid increase in the adoption of technology as businesses seek to use tools like AI to reduce headcount.”
However, adjusting to a new tax environment is likely to cause businesses only “short-term pain,” Heath stresses. “Businesses are pretty nimble and they will adapt to whatever framework they’ve got to operate within. At least now they know what the rules are, even if they don’t like the game.”
Trump’s trade war
“To me, the most beautiful word in the dictionary is tariff,” Donald Trump announced in an interview last month at the Economic Club of Chicago. The possibility of increased tariffs by the incoming US president presents a new cause for concern for businesses around the world in 2025.
Trump has proposed 25% tariffs on Mexican and Canadian goods, rising to 60% on imports from China. The possibility of 100% tariffs on BRIC nations (Brazil, Russia, India and South Africa and China) has also been floated.
Trump’s threats could force countries to make a choice between placating the US or maintaining their relationship with China, the largest market for many of exporters. This is expected to dampen growth in global economies. Allianz Research has estimated that a contained trade war under Trump could see global trade growth slow by 0.6 percentage points, while an all-out trade war, involving 60% tariffs on China and 10% on the rest of the world, could reduce trade growth by as much as 2.4 percentage points.
“Taken in conjunction with other proposed policies, the US dollar could strengthen as a result, particularly against the euro, increasing the purchasing power of the dollar abroad,” says Melissa Howatson, CFO at Vena Solutions. However, other countries have the power to levy their own tariffs in response, which could negatively impact both the US economy and their own.
“Unfortunately, it is impossible to be certain on which policies will come into effect, when they would do so, or even what the policies will eventually look like,” Howatson says. “Whether or not the new administration implements all its promised policies in full, business leaders will need to incorporate adaptability into their budgets and strategies to respond to any sudden economic shifts.”
In Heath’s view, the impact of Trump’s tariffs have been overhyped. A pro-business US economy, he argues, will have a positive impact on the global economy overall. “They are the largest consumer nation on the planet. Whether you’ve got tariffs or not, they will buy stuff from other places around the world and that will drive global growth.”
Geopolitical risk and a peace deal
Geopolitical risk has become a permanent feature of the macroeconomic landscape. There are 56 armed conflicts currently happening, the highest number since World War II, according to the think-tank the Institute for Economics & Peace. Ongoing global trade tensions between the US and China could disrupt UK exports next year, while reports of cyber attacks continue to rise, as malicious groups find new ways to steal data and wreak havoc.
“Conflict continues to be a driving force in global markets, threatening supply chains and driving up costs,” says Myles Corson, EY’s financial accounting advisory services leader. “What is unique about the current situation is that everything is happening at once. Businesses are dealing with the compounding effects of geopolitical unrest, socioeconomic change, supply-chain disruptions and the rapid advancement of technology.”
In 2025, a potential pacification of existing war fronts could lead to decline in uncertainty internationally and relieve inflationary pressures, says Bill Kallinterakis, associate professor of finance at Durham University Business School. But this will be a process and may vary from country to country.
“It is unclear yet how the anticipated end of the war in the Middle East will shape macroeconomic indicators. Presumably, logistical chains in the region will face fewer uncertainties, fostering a reduction in the cost of transport and insurance and, again, helping dampen inflation,” he says. This may also be accelerated in the event of a peace deal in the Ukrainian war.
A return of the M&A and IPO markets
2023 was a bad year for mergers and acquisitions, with the volume of deals plummeting globally. 2024 was only marginally better. But next year will see a rebound in deal volume.
There are signs that the UK M&A market is already growing. Four takeover offers, worth a total of £5.3bn, were announced last week and the long-awaited Vodafone and Three merger is expected to go ahead in 2025.
This accelerated activity will be largely driven by a “significant increase” in the volume of private-equity deals, Heath says. “Buyout firms have lost out on 12 to 18 months of investment so they’ll be looking to deploy that pent-up capital next year,” he adds. This means increased competition and higher pricing for businesses.
New technologies like AI will significantly impact the way M&A deals are completed. They’re already reshaping various stages of the dealmaking process, automating repetitive tasks, powering data analysis and easing processes across all phases of the deal.
More UK IPOs could be on the cards in 2025, Heath says. However, the largest listing will continue to look even more favourably on the US market as a result of Trump’s push for deregulation, he adds.
