We called 2025 a transition year.

We were right about the transition — but not about what would transition first.

Markets didn’t crash. Growth didn’t surge. Instead, 2025 became a proving ground: a test of who could absorb uncertainty, reallocate decisively, and keep moving while others waited for perfect clarity.

At the start of the year, we set out a clear framework. We argued that four forces would define 2025:

1. A fragile but improving macro balance between inflation and growth
2. An acceleration of structural change in the automotive sector, led by EVs and consolidation
3. Selective optimism in private capital, centred on AI, SaaS and mobility
4. A global backdrop shaped disproportionately by US policy and China’s industrial scale

As the year closes, this blog revisits those predictions, examines what actually happened, and draws out the lessons that matter heading into 2026.

A fresh set of predictions will follow in January, first, accountability.

1. The UK Economy: Stabilisation Before Confidence

What We Expected

In January, we argued that the UK economy would grind through 2025 rather than rebound cleanly:

• GDP growth around 1.4%, weighted to the second half
• Inflation peaking in spring before easing
• Interest rate cuts beginning mid-year
• A gradual recovery in consumer confidence as real wages stabilised
• House prices are rising modestly on tight supply and easing mortgage rates

What Actually Happened

The forecast was broadly correct. The experience of the year was different.

GDP growth came in at around 1.2%, with H2 softer than expected. Inflation peaked roughly where forecast, but fell more slowly as services and wage pressures proved stubborn. The Bank of England began cutting rates mid-year, but the pace was cautious rather than decisive.

Real wages improved meaningfully. On paper, purchasing power recovered. In practice, confidence did not.

This was the key miss.

We assumed that stabilising inflation plus wage growth would translate relatively quickly into renewed discretionary spending. Instead, households behaved defensively throughout the year. Big-ticket purchases were delayed. Caution lingered.

What we underestimated was not the economics but the psychology. Consumers weren’t looking forward—they were still processing the damage from 2022–23. The lag between financial recovery and behavioural recovery was far longer than in previous cycles.

House prices rose just over 3%, below our forecast, constrained by affordability despite mortgage rates settling in the high-4s.

Lesson: macro stabilisation does not automatically restore confidence. In a world of repeated shocks, recovery becomes psychological as much as financial.

2. Automotive Retail: Divergence Becomes Structural

What We Expected

At the start of the year, we said automotive would move deeper into structural transition:

• Continued EV adoption despite affordability and infrastructure constraints
• Intensifying pressure from Chinese OEMs, led by BYD
• Ongoing dealer consolidation as capital requirements rose
• Battery prices moving closer to cost parity with ICE
• Hydrogen fading further in passenger vehicles
• OEM consolidation shifting from theory to reality

What Actually Happened

On structure and direction, this played out almost exactly as anticipated.

EV penetration in the UK reached approximately 18% of new registrations, up from 15.2% in 2024. Growth wasn’t explosive, but it was persistent — confirming that the direction of travel remains set, even if the pace is uncomfortable.

Chinese competition intensified sharply. BYD’s global sales surpassed 4.2 million units, resetting pricing expectations and forcing European OEMs to confront uncomfortable questions about their cost base, product cadence, and distribution strategy.

Battery prices fell faster than we expected—by another ~14% to around $99/kWh. This mattered less as a headline number than as a trigger: product planning cycles shortened, EV economics improved, and dealer capex decisions moved from deferrable to unavoidable.

Hydrogen continued to retreat from the passenger-car narrative, remaining relevant only in heavy-duty and niche applications — exactly the path we anticipated.

What truly surprised in 2025 was the speed and severity of divergence.

• Some large groups strengthened their position through scale, technology investment and centralised capability
• Well-run regional specialists outperformed through operational discipline, local market knowledge and inventory agility
• Mid-market operators were squeezed hardest, caught between rising EV infrastructure costs, new-car margin compression of roughly 1.2pp, and volatile used-car working capital

Dealer consolidation remained active, with around two dozen UK transactions. But valuation outcomes were split decisively: high-quality, tech-enabled businesses still commanded 4–5x EBITDA, while weaker assets drifted into sub-3x territory or were distressed-exit assets.

Beneath all of this sat a quieter but more powerful driver: fixed-cost absorption through technology.

By year-end, the gap between top-quartile and median retailers had widened to roughly 4.5 percentage points in return on sales. The difference wasn’t brand mix or geography. It was execution.

The most important insight from 2025 was this: the winners weren’t always the largest or the best-capitalised. They were the operators who treated technology as a margin expansion tool, not a compliance cost. Groups that deployed AI-driven inventory prediction, pricing, and workflow automation early saw step changes in stock turn, labour efficiency, and profitability—not incremental improvements.

Lesson: scale helps, but capability compounds. Technology is no longer optional; it is the primary multiplier.

3. Technology, AI and Private Capital: Discipline Over Deployment

What We Expected

Our view on private capital entering 2025 was cautiously optimistic:

• A modest pick-up in M&A and selective IPO readiness in H2
• Continued investor focus on AI, SaaS and mobility
• Valuations stabilising in the mid-single-digit ARR range for quality assets
• Profitability and unit economics taking precedence over growth-at-any-cost

What Actually Happened

The thesis held. The funnel narrowed.

M&A activity increased in the second half, particularly in vertical SaaS, automotive workflow tools, and data and infrastructure. IPO markets technically reopened, but only for the largest and most proven businesses. For most companies, public markets remained effectively closed.

AI and automation dominated deal flow — inspection, pricing engines, workflow orchestration, service optimisation and conversion tools were repeatedly at the centre of investment discussions.

What changed was the intensity of discipline.

By mid-year, investor expectations had shifted decisively:

• Clear unit economics were non-negotiable
• Breakeven within 18–24 months became the default assumption
• Churn above 10% raised serious concerns, regardless of growth rate
• Products had to demonstrate customer ROI within months, not years

Valuations compressed slightly, into a roughly 5.2x–7.5x ARR range for solid but undifferentiated SaaS. At the same time, genuinely differentiated AI platforms with demonstrable economic impact continued to command double-digit multiples in competitive processes.

Dry powder remained at record levels globally, but deployment lagged. Capital wasn’t scarce; conviction was.

One pattern became undeniable by year-end: technology adoption correlated directly with both operating performance and valuation. Among top-quartile automotive retail performers, most had deployed multiple core platforms across CRM, pricing, and aftersales. Among median performers, adoption remained patchy. The productivity gap was structural, not cyclical.

We expected AI to matter. What we underestimated was how quickly “AI-enabled” stopped being a differentiator and became table stakes.

Lesson: capital flows to businesses that solve painful problems with measurable impact. Being adjacent to AI is not enough; execution is everything.

4. The Global Backdrop: Policy, Scale and Second-Order Effects

At the start of the year, we highlighted the US and China as the two external forces shaping the UK and European environment.

That framing proved correct — but events moved faster than expected.

US policy became more assertive, with trade protection and industrial strategy directly affecting EV pricing, supply chains, and investment decisions. China continued to set the global pace on EV volumes, battery economics and manufacturing scale.

For the UK automotive and mobility sector, this translated into higher cost volatility, more complex sourcing decisions, and a growing recognition that domestic capability—particularly in batteries and critical components—is strategic rather than optional.

Lesson: global policy decisions increasingly drive local economies. Second-order effects matter as much as first-order ones.

5. The Real Lessons of 2025

Across sectors, four themes proved more potent than we allowed for in January:

1. Behavioural scarring lasts longer than models assume
2. Supply chains didn’t normalise — they re-fragmented
3. OEM strategy shifted faster and more forcefully than expected
4. Technology depth became the dominant valuation driver

None of these invalidated the original thesis. They sharpened it.

So, Was 2025 the Year of Transition?

Yes — but with sharper edges than anticipated.

2025 was a year where:

• Scale and capability mattered more than heritage
• Operational excellence outperformed optimism
• Technology adoption became non-negotiable
• Capital flowed to winners, not sectors
• EV strategy gaps became visible — and costly
• Decisive operators pulled further ahead

The broader truth is simple:

Transition years don’t reward patience. They reward precision.

The businesses that thrived in 2025 didn’t wait for clarity. They moved while others hesitated. They invested while others preserved. They automated while others debated.

If 2024 was about endurance, and 2025 about transition, then 2026 will be about separation — between those who adapted and those who merely survived.

Looking Ahead: 2026 Predictions Coming in January

In January, we’ll publish a complete outlook for 2026, centred on one question:

Is 2026 the year recovery properly takes shape — or the next phase of a longer structural shift that rewards discipline and punishes complacency?

For now, 2025 has reinforced one truth:

Those who act early capture advantage.

those who act decisively sustain it;

and those who do both compound it.

Have a great Christmas.