Key takeaways for investors
- The 2025 policy environment for investors was defined by the broader effects of the first year of the second Trump presidency, as governments mainly pursued short-term, reactive measures.
- While the Trump administration will continue to pursue ambitious and disruptive policy agendas at home and abroad, the 2026 investment environment in the UK and Europe will be largely defined by how the UK, EU and national governments grapple with fundamental economic, fiscal and social challenges – against a backdrop of populist parties promising political and economic disruption, if not wholesale reform.
- 2026 will prove an even harder environment for governments to address structural challenges successfully, a task requiring political skill, capital and fiscal headroom that many governments don’t have - often because of fragile governing coalitions.
- Many of the economic and other challenges governments face will increase the need for private capital, especially where fiscal constraints limit public investment.
Ten key considerations for investors into the UK and Europe in 2026
- European governments are committing to pro-growth deregulation in principle, but in practice will deliver incremental adjustments rather than major reform.
Across Europe, member states and the EU will continue to promote – rather than necessarily achieve – regulatory agendas to encourage growth and attract investment. This will not amount to major deregulation or treaty-level reform, due to institutional inertia, political fragmentation and other concerns, and instead largely result in targeted simplification, delayed implementation, and lighter-touch enforcement and reporting requirements, especially for SMEs. There is little momentum behind initiatives to deepen Single Market integration, including in capital markets.
More radical deregulatory initiatives will likely emerge over the longer term where right-populist parties or right-centrist-populist alliances form governments.
- Competition enforcement is becoming more political, increasing uncertainty for large deals while expanded call-in powers complicate smaller transactions and roll-ups.
European authorities will continue to face tensions between strict competition enforcement and the need to attract and retain strategic investment. Merger control, state aid, and foreign subsidy regimes will be applied more flexibly in sectors aligned with industrial priorities, while still creating uncertainty for large cross-border transactions. Some sectors, such as telecoms, will continue to push for regulatory approaches that support consolidation. As the ADNOC/Covestro deal last year proved, outcomes will be more politically driven, with greater scope for remedies, commitments, and negotiated approvals rather than clear-cut decisions.
In the mid-market, buy and build strategies could become more difficult as competition authorities achieve greater call-in powers for smaller transactions. Today, more than half of EU member states have achieved or are pursuing such powers. This will be particularly true in sectors where consolidation strategies have already attracted political criticism, such as health & care, vets, children’s services.
- National security scrutiny and approvals will become more prevalent.
The expanding scope of FDI regimes across Europe will likely increase the number of sectors subject to national security screening as part of the deal process. For example, the UK water sector may be added to the National Security and Investment Act’s mandatory notification regime – the UK’s FDI screening tool – in the coming months. More generally, there is an increase in the targeting of the private sector by hostile states seeking to disadvantage democratic countries through indirect means. Together with the fracturing of traditional alliances and need for more sovereign protection of assets, data and infrastructure, we will likely see increased scrutiny on M&A, JVs and suppliers for critical industries.
- Net zero will be preserved at a headline level but somewhat diluted in delivery.
The reality of the costs and trade-offs of the energy transition is starting to bite, putting pressure on centrist governments. While they will struggle politically to delay or repeal commitments outright, they will likely opt for complex regulatory adjustments (such as the recent EU automotive package) in an attempt to reduce costs for consumers and industry - such as softer penalties, extended compliance pathways, or sector-specific exemptions.
On energy costs specifically, governments are increasingly looking at subsidy schemes for consumers and businesses to mitigate net zero costs without changing the fundamental net zero policy architecture. By contrast, populist governments are more likely to push for clean breaks, removing targets and associated legislation altogether.
- Trade risk may create opportunity away from the US.
There is no reason to expect a fundamental change in US trade policy. Any tariffs removed due to legal challenge are likely to be replaced in other forms. European governments will respond by diversifying trade and investment relationships, including through new FTAs (e.g. EU-India and EU-Mercosur) and deeper cooperation within regional and plurilateral groupings. This creates opportunities for investors who will benefit from increased market access between European and non-US markets, and localisation and industrial strategy efforts.
- The EU and the UK will face extra pressure from the US.
US pressure on Europe will be more acute, most immediately over Ukraine (whose reconstruction in the event of a peace deal could create investment opportunities) and Greenland. A phased reduction of US defence engagement will drive European defence spending but consequently increase fiscal pressures where very little headroom exists.
There will be further tensions over digital and sustainability regulation, backed by threats of retaliatory action. US support for nationalist populist parties and policy agendas in Europe will become stronger and more explicit. Responses to this pressure will vary by jurisdiction, depending on their individual relationship with the US and economic situations.
- Data centres will remain a strategic priority for governments, but the same execution barriers will remain.
Governments increasingly regard data centres as critical national infrastructure underpinning AI development, digital growth, and the energy-transition agenda. Political momentum is shifting from oversight to enablement, with fast-track regimes, AI-growth zones, and national-significance designations emerging across Europe to accelerate the delivery of strategic infrastructure. But getting a grid connection will remain the biggest execution challenge for developers, as physical constraints to grid capacity remain unresolved even by policy innovation. Investors will find that protracted timelines, constrained regional grid capacity, and complex permitting procedures will remain the main bottlenecks for project delivery. Policy makers are taking steps to address the queues, but the fundamental challenges of grid capacity will remain in the short to medium term.
- AI and technological sovereignty will force hard trade-offs, resulting in greater regulatory fragmentation and uncertainty.
European governments will seek to define what “technological sovereignty” means in practical terms amid an uncertain trade environment. This will drive greater support for domestic capabilities in compute, data, and applied AI, alongside tighter rules on data access and foreign dependencies. However, maintaining access to global technology flows remains essential for competitiveness. Investors should expect uneven policy signals, fragmented markets, and rising compliance costs, alongside targeted opportunities where national priorities are clearly defined.
- Efforts to mobilise domestic savings will intensify scrutiny of the role retail capital can play in private markets.
Across the UK and EU, financial services policy is increasingly oriented toward growth, competitiveness and capital formation amid heightened geopolitical constraints. In the UK, policymakers are actively exploring pension reform and capital markets initiatives aimed at mobilising domestic savings into equities, including private markets. As these efforts accelerate, private markets will attract greater regulatory and political attention, with regulators required to balance growth objectives against investor protection and financial stability considerations.
- Defence spending will continue to rise, but with clear winners and losers as governments prioritise delivery, readiness and value for money.
Greater political and fiscal scrutiny around delivery, value for money, and measurable readiness outcomes mean there will be clear winners and losers. In the UK and EU, defence spending will continue to rise, accompanied by sharper scrutiny on delivery credibility, sovereign industrial capacity, and force readiness. But the US will remain the largest and most influential defence market, and congressional pressure on efficiency and allied burden-sharing will intensify. 2026 will see greater emphasis on autonomy, data, AI-enabled command, and industrial resilience, alongside harder trade-offs between maintaining full sovereignty over data, technology, and supply chains versus achieving the speed required to deploy capability at scale. Companies able to demonstrate deployable capability, rather than innovation narratives, will outperform competitors.
This blog was written by Martin Summers Director in the Private Markets team, Joe Jones, Partner and Dylan Saralis, Associate Director. We offer buy and sell side services: regulatory, policy and political DD, advice on trade, on competition policy and national security clearance, and value creation. We advise investors across the globe on investments into the UK, Europe and APAC.'
