Experts have warned that the retail and hospitality sectors could see a rise in insolvencies as firms are hit by higher taxes and rising energy prices. Analysis from Begbies Traynor shows that the number of UK retailers in financial distress rose to 2,124 in Q4, up from 1,696 in Q3. Nicky Fisher, a former president of insolvency and restructuring trade body R3, said: “The December period will either be a lifeline or the tipping point for a number of businesses – especially those in the retail and hospitality sectors, who have had a challenging year of continued rising costs coupled with cautious customer spending.” Looking ahead, David Kelly, a partner at PwC, said 2025 “is poised to bring fresh challenges, including navigating the implications of the Autumn Budget measures and responding to the evolving actions of clients and suppliers.” Overall, Office for National Statistics data shows that company insolvencies were up 13% month-on-month in November, although they were lower year-on-year.

Britain’s services exports are projected to exceed £500bn this year, driven by finance, law, and business advisory sectors, according to researchers at PwC. However, rapid economic growth in Eastern Europe, particularly in countries like Poland and Hungary, is expected to narrow the economic gap with the UK, with forecasts suggesting Poland’s GDP per person may surpass Britain’s in the coming years. Additionally, UK crude oil production is anticipated to fall below 30m tonnes, the lowest since 1977, while renewable energy production is set to increase significantly. Barret Kupelian, chief economist at PwC, commented: “Last year, we predicted 2024 would see the UK turn a page, and in many ways it did – inflation returned back to target levels, there was some progress on regional growth and real incomes grew. This year, our predictions show that the UK will undergo subtle yet significant transformation in both its internal and external environment.”

Businesses in the UK are showing increased optimism for 2025, with 70% anticipating higher turnover in the first quarter compared to the previous year. A sentiment index from Lloyds indicates that nearly three-quarters of surveyed companies expect improved profitability, with a fifth projecting revenue increases of over 10%.

According to the Resolution Foundation, white-collar graduates in the UK are experiencing a significant decline in real earnings. Accounting graduates, the study shows, make £3,400 less than they did at the start of 2017 once adjusting for inflation. The report reveals that annual salaries for typical recent graduates have fallen by 4% in real terms since 2001 and now average just over £34,000. The Resolution Foundation highlights that the legal minimum wage has surged by nearly 60% since 2001, reducing the salary premium for graduates from £22,000 to £12,400. Jack Kennedy from Indeed said: “It speaks to employer caution. They are taking the view that in a weak overall market, people are going to be keen to secure any graduate role they can, so there is no need to go too hard on salaries.” The research also shows that around two in five British workers are in jobs they are overqualified for.

Analysis shows that public sector workers are taking mental health sick days at a rate three times higher than their private sector counterparts. The number of mental health sick days taken nationwide increased by 6.6% from 2020 to 2022, reaching 14.6m. In 2022, the sickness absence rate for state employees was 3.6%, with over 12% of these days attributed to mental health issues. Just under 0.5% of all public sector working hours were lost to mental health issues in 2022, more than three times the 0.15% lost in the private sector. Meanwhile, according to a report by the Resolution Foundation, nearly one in five workers will be employed within the public sector by 2030, increasing from 16% in 2018 to 18.3%.

More than 600 complaints have been sent to the pension watchdog over employers failing to enrol employees into a workplace scheme since 2019. In the past three tax years, there have been more than 100 complaints related to the matter logged with the Pensions Ombudsman, with 636 overall since April 2019. Tom Selby, director of public policy at investment platform AJ Bell, said there was a “noticeable spike” in cases around the pandemic when businesses were struggling, commenting: “It wouldn’t be a massive surprise if some attempt to dodge their auto-enrolment responsibilities to save a bit of cash. Clearly if they do that they will be breaking the law.”

HMRC has launched a disclosure service for companies that have overclaimed research and development tax relief. The service is targeting companies that have claimed too much R&D relief in error but did not amend their tax return, rather than those which deliberately overclaimed. This comes with analysis showing that errors and misuse of the tax break have cost the Treasury more than £1bn in missing revenues, with almost £1 in every £4 provided under the scheme lost to fraud and error between 2020 and 2021. HMRC has warned that the relief has been an “attractive target for organised criminal gangs and wider non-compliance.” Dawn Register, a tax dispute resolution partner at BDO, said: “If a company now realises that past R&D claims prepared for them by such agents were, shall we say, ‘speculative’, then a voluntary disclosure is certainly the way forward.”

HMRC is collaborating with private sector companies to enhance the taxpayer experience and address ongoing customer service issues. Complaints about HMRC’s accessibility have surged in recent times, with average phone wait times increasing from five minutes in 2018/19 to nearly 23 minutes in 2023/24, according to the National Audit Office. With little evidence that the expansion of digital services has improved the situation, ministers have instructed the tax office to work with the private sector on how to improve the situation. A spokesman for HMRC said: “Learning from these conversations will help accelerate our work to become a digital-first organisation, giving our customers quicker and easier ways to manage their tax affairs.”

Experts argue that Rachel Reeves’ pledge to avoid further tax hikes is increasingly in doubt, saying the Chancellor may need to raise additional funds due to the economy flatlining and inflation rising. Carl Emmerson from the Institute for Fiscal Studies (IFS) has warned that “the outlook is uncertain,” highlighting the tight fiscal targets Ms Reeves faces, while Paul Johnson, also from the IFS, suggests that if economic conditions do not improve, Ms Reeves may have to seek more funds, telling Times Radio: “It’s not impossible the Chancellor will feel she needs to come back for yet more money.” Following a £40bn tax raid announced in the October Budget, which included £25bn in employer National Insurance hikes, business leaders have expressed concerns over potential job losses and rising prices.

UK tax evasion disclosures on foreign assets rose by 22% in 2023/24, with 5,643 people telling HMRC they had failed to pay enough tax on their overseas assets.

Finance leaders are optimistic about Labour’s plans to reduce regulations, with a KPMG survey revealing that over 70% believe these policies will attract foreign investment. Chancellor Rachel Reeves has committed to dismantling excessive financial red tape, saying that regulatory changes post-2008 have “gone too far.” The poll saw 94% of financial services firms say they expect to turn a profit in the first quarter, up from 83% in the first quarter of 2024. While 55% said they plan to increase hiring in 2025, 17% are planning a “significant” recruitment drive. Despite this optimism, concerns linger regarding the impact of increased taxes and National Insurance contributions on hiring. Karim Haji, global and UK head of financial services at KPMG, said: “Financial services is the backbone of the UK economy, so it’s encouraging to see leaders go into the new year with optimism about the Government’s growth plans for the sector.”

The Bank of England, Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are to be handed powers to regulate tech companies providing “critical” services to UK banks. The City watchdogs will oversee companies that are increasingly crucial to the digital banking and payments sector, with this coming amid concerns that issues involving tech giants could put the UK’s financial stability at risk. Once under the supervision of the financial services regulators, tech firms and other suppliers will have to undergo stress tests. They will also be forced to report major incidents such as cyber-attacks and power outages. A Treasury spokesperson said officials are working with the Bank, FCA and PRA “to regulate systemically critical third-party suppliers that support the UK financial sector.” Firms set to be involved include Amazon Web Services, whose clients include HSBC, Starling Bank, Nationwide, and Monzo. Google may be selected as it serves companies including Revolut, NatWest, GoCardless, and Atom Bank, while Microsoft is likely to be considered as it lists Investec, Virgin Money and Standard Chartered as customers.

Figures from Dealogic show that the London Stock Exchange has lost more companies to takeovers than it gained through new flotations since 2015. While 585 companies worth a combined total of £779bn have left the London market after being bought by competitors or private equity in the last decade, 567 joined either the LSE’s main market or junior division AIM, with these having a combined value of £66bn. Samuel Kerr, at Dealogic’s owner ION Analytics, said: “Much of the slowdown can be attributed to the need to establish a new identity for the LSE since the UK left the European single market, with London no longer an English-speaking common law bridge to European markets as it once was.” He added that listing reforms by the Financial Conduct Authority “have come some way to reducing any regulatory burdens of a London-listing,” but the “proof in the pudding will be whether the LSE can attract sizeable IPO candidates in 2025 and beyond.”

Data from the London Stock Exchange shows that proceeds from global IPOs fell 3% to $108.4bn in 2024, with this the lowest total since 2008. The figures also show that the number of listings fell to 1,145 from 1,271 in 2023. London’s stock exchange fell to 35th among all stock exchanges globally on IPOs, with just $576.7m raised. This gave the UK just 0.53% of the global market. However, the UK ranked fifth when follow-on fundraising was included, having raised $28bn with 73 issuances. Meanwhile, the IPO market in continental Europe has experienced a significant resurgence, with proceeds doubling to €14.6bn over 57 floats, according to PwC. In contrast, the UK market raised only £700m from eight IPOs, a decline from the previous year.

The chief investment officers at several large asset management firms expect UK stocks to outperform global equities in 2025, according to analysis by Asset Risk Consultants. Almost a quarter of the 98 UK CIOs polled cited the threat of trade wars as the single biggest risk facing markets this year, with rising inflation the next biggest threat. While 20% said increasing prices and the response from central banks could be an issue, other concerns cited included government debt levels (15%), stock market concentration (14%), and a recession in the US (8%). While 57% of the finance chiefs said they were optimistic about the outlook for equities, just 1% were negative. On the outlook for the pound in 2025, 21% were positive and 24% were negative, while just 5% expect the euro to perform well in the year ahead. The CIOs quizzed came from firms including Barclays Wealth, Brewin Dolphin, Investec, Rathbones and UBS.

Tesla boss Elon Musk has suggested “very few companies” would be willing to put money into the UK under “the current administration.” However, Downing Street has rejected the claim, insisting that the Government has taken an “unashamedly” pro-growth and pro-business approach. The Prime Minister’s official spokesman added: “You’ve seen the Government respond to some of the businesses’ key concerns in the UK, which is lack of stability, and the Government’s brought back that stability, both politically and economically.”

The future of London’s market for trading and clearing derivative contracts could come under threat unless the UK can agree a new deal with the EU. The right of London to trade derivative contracts generated by financial institutions based in the EU relies on a temporary waiver agreed by the bloc and European financial regulators. This agreement expires in June and to secure the future of the London Clearing House (LCH), part of the London Stock Exchange Group, Britain will need a more permanent “equivalence” deal with the EU to allow European-based banks and financial groups to retain access to LCH trading. In the first half of 2024, the LCH cleared £630trn of transactions. This marked a 15% increase on H1 2023.

Economists expect the Bank of England to cut interest rates at least four times this year as officials look to boost economic growth. A Times poll of 51 economists found that they believe the base rate will fall to at least 3.75% in the year ahead, from the current rate of 4.75%. While 35% said the base rate would be lowered to 3.75%, 15% said it would drop to 3.5% and three believe the rate will fall to 3.25% before year end. The remaining 22 respondents expect the base rate to be lowered to between 4% and 4.25%. On inflation, just two respondents expect it to fall below the Bank’s 2% target in 2025 and 37% suggested that wages would be the single biggest driver of inflation. It was also shown that 70% believe that annual earnings growth will be in the 3%-5% range.

A new poll shows that two-thirds of voters do not believe that the Government can help ease the cost-of-living crisis in the year ahead. This is despite the Prime Minister’s pre-election pledge to put more money into peoples’ pockets. The survey of 2,019 people saw just 26% say the Government will tackle the cost-of-living in 2025, while 62% said they did not believe ministers can deliver a positive change. The poll also shows that 75% of respondents are worried about further rises in food prices, while 74% have concerns over and energy bills ahead of next month’s 1.2% increase in Ofgem’s price cap. While 67% of voters are worried about having less disposable income, 63% said they are concerned about not being able to save any money.

Steve Young, Dell Technologies’ UK senior vice president and managing director, says AI will “reshape the UK business landscape” in 2025. He says that while 2024 was a “year of discovery” as firms experimented with generative AI tools, 2025 will be the year the technology “shifts from exploration to execution.” Suggesting that for many firms, “the test-and-learn phase is already starting to pay off,” Mr Young argues that to see a true return on investment, “businesses must apply AI technology only to the most impactful processes in their most important functions.” He went on to warn: “Organisations that fail to adopt the right AI strategy and architecture will be at a disadvantage.”