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UK business confidence weakened sharply at the end of 2025 and hiring fell amid rising costs and uncertainty about the economic outlook, according to key business surveys.
Contrasting with the prime minister’s optimistic new year message that the country was about to start feeling richer again, the jobs market weakened, with full-time and temporary appointments falling in December, according to a study by the accountants KPMG and the Recruitment and Employment Confederation (REC).
Jon Holt, the group chief executive of KPMG, said: “The jobs market at the end of 2025 was still signalling caution. After a long stretch of rising cost pressures and higher global economic uncertainty, many firms continue to pause hiring and are flexing where they can by using temporary staff.
“As we head into the new year, this restraint is likely to remain in the near term.”
Meanwhile, UK business confidence weakened sharply at the end of 2025, according to the latest business trends report from BDO, with the accountancy firm’s “optimism index” falling to its lowest level in nearly five years.
Scott Knight, the head of growth at BDO, said: “Business costs are rising and turnover expectations are falling; it’s no wonder that optimism is on the floor. Decisive action like further interest rate deductions and a clear roadmap of what’s ahead is critical if they’re to grow and invest.”
Keir Starmer kicked off 2026 with a series of briefings about how Britons would soon notice an improving economy, with claims his government had succeeded in bringing down living costs because of cuts to energy bills and interest rates as well as the end of the two-child benefit cap.
There was also mixed news for Downing Street from a third economic survey, showing that Britain’s manufacturers believe the introduction of the government’s industrial strategy last year will boost their growth prospects in 2026.
A majority of manufacturers believe the opportunities for their business to succeed outweigh the risks this year, according to an annual survey from the sector’s trade body Make UK and the accounting group PwC.
However, Make UK said the survey also signalled that the significant increases in business costs, especially on employment and energy, were threatening to reach “a tipping point whereby investment plans will be cancelled or shifted overseas”.
Stephen Phipson, the chief executive of Make UK, said manufacturers could only thrive “in the most favourable business environment”.
He said: “Despite the commitment to an industrial strategy, not only is growth anaemic but the warning lights are now flashing red on the UK as a competitive place to manufacture and invest. The government promised significant change; now is the time to deliver it.”
