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last updaten on 25 August 2023 | reading time approx. 3 minutes
The economy of the United Kingdom in 2025 remains in a period of transition. Although inflation has eased compared to 2023, ongoing supply chain issues, a constrained labour market, and only modest GDP growth continue to hinder a full recovery. The Bank of England has begun to cautiously reduce interest rates, yet borrowing costs remain comparatively elevated. While Brexit no longer dominates headlines, its long-term structural impacts still influence trade, labour movement, and regulatory divergence from the EU. Nevertheless, sectors such as fintech, renewable energy, and life sciences continue to demonstrate resilience and strong growth prospects.
The United Kingdom continues to be a top destination for foreign investment, especially in sectors such as technology, financial services, clean energy, and biotechnology. New opportunities have emerged due to government incentives supporting innovation, regional development funding, and a post-pandemic trend toward nearshoring. While London maintains its status as a global financial centre, cities like Manchester, Birmingham, and Edinburgh are increasingly attracting investment in technology and manufacturing. However, investor confidence remains tempered by political uncertainty surrounding fiscal policy and the UK’s regulatory alignment with the EU. A major infrastructure initiative – the High-Speed Rail link between London and Birmingham – is underway and is expected to drive a substantial redistribution of wealth, talent, and investment to key regional cities beyond the capital.
German businesses encounter several challenges in the UK market, particularly concerning customs procedures, VAT treatment, and the increasing divergence in regulatory standards following Brexit. Employment legislation and visa rules for EU nationals continue to create operational obstacles. Moreover, shifting data protection frameworks and the UK’s potential move away from the GDPR further complicate matters for companies operating across both jurisdictions. Nonetheless, strong trade ties and cultural alignment between Germany and the United Kingdom continue to foster cooperation. Encouragingly, the UK government announced last week an “agreement in principle” aimed at improving EU-UK trade relations, which could help alleviate many of these ongoing issues.
The UK government has committed to ambitious climate objectives, targeting net-zero emissions by 2050, with interim milestones already shaping policy direction and investment flows. Areas like offshore wind, hydrogen energy, and carbon capture are receiving substantial funding and drawing international collaboration. In parallel, the United Kingdom is developing regulatory frameworks to support green finance and sustainability reporting. For German companies in the energy and industrial sectors, this evolving landscape offers opportunities for strategic collaboration, while also presenting new compliance requirements.
The UK's development in the coming years is expected to be challenging and uncertain due to political instability, trade disruptions, an energy crisis, and high inflation. However, there are opportunities for the country to address and overcome these issues. The recovery will vary across sectors, with the COVID-19 pandemic accelerating digitization and remote working. Businesses that embrace strategic foresight, adapt to changing customer and employee habits, and invest in innovation can lead the recovery. The new trading relationship with the EU presents challenges and opportunities, and businesses need to navigate uncertainties while capitalising on growth opportunities. Overall, the UK's development hinges on addressing current challenges, embracing innovation, and being agile in a changing economic landscape.
Imran Farooq
Partner
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Rödl & Partner in Great Britain
