Germany in 1940 had no capacity to invade Britain. The British Expeditionary Force had been evacuated from the continent during the Battle of France, and had to leave the vast majority of their equipment behind. France's defeat left only the British in the fight against Germany, but there was a critical geographical feature in play--the English Channel. To cross it, the Germans had to find ships to do this task. This was to be accomplished with river barges and a motley flotilla of other ships. However, two other prerequisites had to be completed as well: neutralize the RAF and neutralize the Royal Navy.

At the time, it was seen as nearly impossible to attempt an amphibious invasion without aerial superiority. As such, the Germans attempted to eliminate the RAF during the Battle of Britain. I give more depth of information here, but basically the Germans were unable to accomplish this task. They did not destroy enough RAF fighters to gain control over the skies of southern England. The Luftwaffe also took heavy and unsustainable losses during this attempt. Since the Luftwaffe was supposed to continue to try to suppress the RAF while also countering the Royal Navy (a force that dwarfed the German surface forces available) as well as providing close air support to the ground forces, the invasion was delayed multiple times. Eventually it was cancelled outright.

Hitler had the desire to knock the British out of the war, but Germany did not have the capacity to do so. This is the case with the invasion scenario, and it is also true for the attempted blockade conducted via submarines and surface raiders that were costly to the British but ultimately were unable to sink enough ships to truly starve the British Isles of food and supplies. The attempts at terror bombing that were predicted to be a war-winning strategy by the interwar bomber theorists did not pan out, as British morale was able to withstand the "Blitz."