Business confidence in the United Kingdom has sharply declined following the recent budget announcement, leading to a significant slowdown in hiring across various sectors. Experts warn that this trend could signal a challenging year ahead for both employment and economic growth.
According to a report from the accountancy firm BDO, business morale fell to its lowest level in nearly five years as of December 2025. The optimism index revealed that firms are experiencing the most significant pessimism since the pandemic began. In parallel, a survey conducted by KPMG and the Recruitment & Employment Confederation (REC) highlighted a dramatic reduction in hiring activity, with demand for staff continuing to weaken.
Neil Carberry, chief executive of the REC, emphasized the need for improved business confidence to stimulate hiring. “Making this a better year for hiring will require a focus on building business confidence to invest,” he stated. Unfortunately, the economic landscape appears bleak after the introduction of a second tax-raising budget, an increase in the minimum wage, and updated worker rights proposed by the Labour government.
Opposition spokesperson Andrew Griffith criticized the government’s economic management, stating, “These surveys show that business confidence is collapsing about as fast as the Prime Minister’s popularity.” He attributed the decline to low consumer demand, rising employment costs, and the ramifications of Labour’s proposed legislation.
The BDO report illustrates that the downturn in confidence is widespread across both manufacturing and services sectors. The persistent low optimism could keep economic output constrained as high operating costs weigh down growth. Scott Knight, head of growth at BDO, remarked, “Business confidence is at its weakest in years. It is far from ideal.”
The latest UK Report on Jobs from KPMG and the REC indicated that permanent placements fell at the fastest rate since August 2025, as firms reacted to the budgetary changes. The report detailed that uncertainty surrounding the economic outlook, combined with rising costs, heavily impacted recruitment efforts, resulting in a significant caution in hiring practices.
Jon Holt, chief executive and UK senior partner at KPMG, noted, “The jobs market at the end of 2025 was still signalling caution. Many firms continue to pause hiring and are flexing where they can by using temporary staff.” He added that this restraint is likely to persist as businesses wait for signs of improved confidence in the economy before resuming hiring.
The implications of this decline in business confidence extend beyond immediate hiring concerns. With unemployment rates poised to rise, the overall economic landscape may face significant challenges. Observers suggest that decisive actions, such as interest rate reductions and clear economic roadmaps, are essential for encouraging growth and investment in the coming months.
As the situation develops, the government faces mounting pressure to address the concerns raised by businesses and to foster a more conducive environment for hiring and investment.
