Imagine an economy that's alive on the surface but dead inside, stumbling forward without real vitality—welcome to Britain's 'zombie' predicament, where even the heart of its finance sector is under siege.
November 5, 2025 - 10:00am
Ever since the global financial meltdown of 2008, the UK has been gripped by periodic waves of anxiety over so-called "zombie firms"—those businesses that keep operating despite barely growing, often propped up by artificial life support like cheap borrowing. In the aftermath of that crisis, folks worried about zombies lurking in manufacturing and retail, where low interest rates kept fading industries afloat. Then, the Covid-19 pandemic and Russia's invasion of Ukraine expanded this eerie phenomenon to utilities, especially the energy world, as companies clung to life without thriving. Now, the spotlight has shifted to the realm of private equity and venture capital, with reports from the Financial Times highlighting how many of these firms are battling to secure fresh capital, merely managing what they've already got.
To put this in perspective for newcomers, private equity involves investing in private companies to improve and eventually sell them for profit, while venture capital funds startups with high-growth potential. These sectors are crucial for injecting dynamism into economies, like how a garden needs water to bloom.
The numbers paint a stark picture. UK's domestic investments in private equity and venture capital peaked at £10.5 billion in 2020 (adjusted for inflation), but by 2024, that figure had plummeted 47% to just £5.6 billion. And when it comes to raising funds overall, the drop is even steeper—down a whopping 61% in the last couple of years. Think of it as a faucet running dry: less water means less to irrigate the economic fields.
But here's where it gets controversial—why is this happening in a supposedly robust economy? Given the UK's sluggish growth and higher inflation compared to other advanced nations, it's no shock. For beginners, inflation is like prices rising faster than wages, making everything cost more and squeezing household budgets. This has led to stagnant wages and dwindling savings, as people have less left over to stash away. Just last month, the Office for National Statistics (ONS) slashed its estimate of the UK's savings rate, revealing tens of billions less in domestic savings than expected. In simple terms, there's simply less money floating around domestically to fuel investments or attract global funds to the UK.
This dearth of capital is alarming because the UK has leaned heavily on financial services as its growth engine for decades. From 1997 to 2008, exports of financial services exploded by 300%, acting like a turbo boost that masked the decline of traditional manufacturing sectors. It's as if a car relied on flashy gadgets to hide a failing engine. Yet, post-2008 crash, those exports have flatlined, leaving the economy to limp along. Britain's financial elite still chatter about reviving the glory days, believing the banking powerhouse can resurrect itself. And this is the part most people miss: those "good old days" are gone forever, victims of shifting global tides.
For all the hype about London's prestige—the renowned City district, a top-tier legal system, and the convenient time zone for international deals—the true draw was the abundance of cash circulating here. Globally savvy investors are waking up to the fact that the UK's financial edge, once the world's mightiest, has eroded, with activity migrating to the US and East Asia, where genuine economic vigor thrives. Picture it like a party moving to a more energetic venue—people follow the buzz.
This shift brings us to one of the fiercest financial debates today: how to handle our pension wealth. Should we deploy it to pivot toward a fresh economic paradigm that spurs real growth, or pour it into sustaining the outdated model? There are no simple fixes. Transitioning would mean pension holders settling for comparatively lower returns compared to investing freely worldwide—think of it as choosing steady, sustainable crops over risky, high-yield gambles. But sticking with the status quo risks wasting resources on a sinking ship.
As a result, tough decisions keep getting postponed. Britain isn't just harboring zombie companies; it's dealing with an entire zombie economy. The catch? The beneficiaries of the old system, so intertwined with financial services, still steer the conversation, and it's hardly in their playbook to admit the party's over. We're pouring resources into propping up this outdated structure instead of innovating goods and services the world truly craves. But as any good horror flick reminds us, zombies can't be held at bay indefinitely.
What do you think—should we embrace a radical economic overhaul, even if it means short-term sacrifices, or defend the familiar at all costs? Is the UK's financial decline inevitable, or is there a hidden path to revival? Share your thoughts in the comments—let's debate this together!
Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.
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