For UK Small and Medium-sized Enterprises (SMEs) with revenues between £1 million and £20 million considering a sale or other exit in 2025, the landscape is shaped by a combination of domestic stability, specific governmental pressures, and significant global headwinds. Given that these businesses would not be considering an Initial Public Offering (IPO), the focus shifts entirely to private sale and acquisition strategies.

Here's how the outlook will likely impact such UK businesses:

1. Domestic Economic Environment: A Mixed Bag with Fiscal Pressures

 * Overall UK Economy

The British economy is expected to show continued growth in 2025, with a pick-up observed in 2024, and forecasts becoming more optimistic. Inflation is anticipated to return near its 2% target, and interest rates are falling, which generally creates a more favourable environment for business activity. Domestically, the political situation is described as "slightly calmer" with the new Labour government's policies, particularly on infrastructure and housebuilding, looking promising.

 * Labour Government and "Wealth/Stealth" Taxes

The Labour government, holding a potentially large majority, faces a significant challenge to deliver on its promises and needs "robust growth to boost the tax take and pay for its plans to repair public services without another big increase in borrowing". However, there is an "occasional enthusiasm for soak-the-rich tax policies that could hinder efforts to lure investors". If robust growth does not materialise, or if the government opts to avoid "social welfare cuts" (which would increase spending needs), new tax revenues would be required to balance the books.

Furthermore, "high public debt and defence budgets will crimp governments’ ability to spend". While specific to NATO's broader spending targets and Europe's defence needs, the UK, as a major NATO member, will face pressure to contribute to increased defence spending. This added fiscal pressure, combined with the stated need to fund public services, could lead to the imposition of such "wealth or stealth" taxes on business owners over the coming 6-18 months.

 A troubling scenario would be if "everything goes right yet growth still does not materialise," which would signal a deeper, structural growth problem like weak productivity. Such a scenario would intensify the pressure for new tax revenues.

2. Global Headwinds and Geopolitical Uncertainty

 * Global Slowdown

Geopolitical tensions are expected to weigh on overall world GDP growth, projected at just 2.5%. For a "medium-size and open economy like Britain’s," a global slowdown would be particularly impactful.

 * Donald Trump's Return

The return of Donald Trump to the US presidency will present new challenges. His "America First" policies and stated intent to impose substantial tariffs could intensify trade wars. While Britain's economy is more skewed towards services exports, which might lessen the direct impact of tariffs on manufactured goods, a general deterioration of trade relations and global economic stability would negatively affect the UK business environment and investor sentiment.

3. Implications for Non-IPO Exit Strategies (Private Sales, Mergers, Acquisitions)

 * IPO Market Unsuitable

For UK SMEs, the IPO market is explicitly noted as "dreary" globally and is "unlikely to see a flurry of debuts in 2025". Company bosses often "dislike the extensive disclosure and regulatory requirements" of public listings.

 * Preference for Private Markets

The rapid growth of private capital markets, which have "fewer rules," offers executives a chance to "shun the spotlight". This suggests that for SMEs, private sales, mergers, or acquisitions will remain the more viable and favoured exit routes in 2025.

4. Impact on Valuations and Buyer Appetite:

 * Falling Interest Rates

The Federal Reserve and other central banks in the rich world have begun to loosen monetary policy. Interest rates in the UK are also falling. This could make financing acquisitions cheaper for potential buyers, potentially supporting valuations for businesses considering a sale.

 * Investor Sentiment

While public markets are not for SMEs, broader investor confidence can affect private deal-making. The general economic environment and the perceived stability of the UK under the new government could influence the appetite of private equity firms or strategic buyers.

 * "Wealth/Stealth" Taxes

The potential for increased "soak-the-rich" tax policies could impact sellers by reducing their net proceeds from a sale. This could either deter some owners from selling or lead them to demand higher gross valuations to compensate, potentially making deals harder to strike. It might also incentivize some owners to accelerate their exit plans to complete a sale before any such tax changes are implemented.

 * Productivity and Investment

While overall IT spending is rising due to AI, AI has had "almost no impact on America's economy, with unemployment still very low and productivity growth weak". In the UK, only 20% of firms are using AI, with no sign of diffusion. This suggests that a widespread "productivity boost from AI" will not immediately materialise in 2025, which means SMEs shouldn't rely on it to boost their fundamental valuation drivers (profitability, efficiency) if they haven't already invested in and integrated AI significantly. Overall capital spending across the rich world "remains fairly weak", indicating businesses are not yet broadly investing in AI for productivity gains.

In summary, for UK SMEs aiming for an exit in 2025, the environment is complex. While domestic economic conditions, including falling interest rates and a calmer political scene, offer some positives, the significant global uncertainties, particularly from a Trump presidency, and the Labour government's likely fiscal pressures including potential "wealth or stealth" taxes, will be critical factors. IPOs are not a consideration, so all attention will be on private transactions. Business owners will need to weigh the potential for increased tax burdens against current market conditions and strategic opportunities for private sales or acquisitions.