UK business confidence drops as hiring slows amid rising costs

Published: 12 January 2026. The English Chronicle Desk. The English Chronicle Online.

UK business confidence dropped sharply at the end of 2025 as hiring slowed significantly across multiple sectors. The focus keyword UK business confidence appears early in this report, reflecting surveys that reveal companies are increasingly cautious due to rising operational costs and economic uncertainty. Accountancy and recruitment studies indicate that firms paused hiring, reducing both full-time and temporary appointments in December. The weakening jobs market contradicts government claims that citizens would soon feel financial relief after energy and interest cost reductions.

According to KPMG and the Recruitment and Employment Confederation (REC), businesses remain cautious despite official reassurances. Jon Holt, KPMG’s chief executive, emphasised that firms are strategically using temporary staff while avoiding long-term hires. He stated that cost pressures and global uncertainties have kept many companies in a holding pattern, delaying expansion and recruitment. Holt suggested that this restraint is likely to continue through early 2026, especially as businesses assess the potential impact of new policies.

At the same time, the BDO business trends report confirmed that UK business confidence weakened dramatically, with the firm’s optimism index falling to its lowest level in nearly five years. Scott Knight, BDO’s head of growth, explained that rising business costs combined with declining turnover expectations are forcing companies to reassess investments. He argued that clear government guidance on interest rates and economic policy is crucial to restore confidence and stimulate growth across key sectors.

Despite these warnings, Prime Minister Keir Starmer opened 2026 with public briefings promising that citizens would soon notice improvements in the national economy. He highlighted government achievements such as the energy bill reductions, interest rate cuts, and the conclusion of the two-child benefit cap. Nevertheless, these announcements contrast sharply with surveys revealing that UK business confidence remains fragile and hiring decisions are being delayed.

The REC’s December employment survey showed that both permanent and temporary placements had fallen, particularly in sectors sensitive to rising costs such as manufacturing, retail, and hospitality. Analysts noted that even firms anticipating recovery are still wary, indicating that employment trends may remain subdued well into the new year. The cautious hiring patterns are symptomatic of broader uncertainty across the UK economy, reflecting rising operational expenses and unpredictable global market influences.

Manufacturers received a mixed outlook from recent surveys, including data from Make UK and PwC, indicating that government industrial strategies introduced last year might provide growth opportunities. A majority of manufacturers surveyed believe their businesses can benefit from these policies. However, they also warned that escalating business costs, especially in employment and energy, risk reaching a tipping point that could push investment plans abroad.

Stephen Phipson, Make UK’s chief executive, emphasised that manufacturing can thrive only in a favourable business environment. He warned that despite the industrial strategy, growth remains weak, and competitive pressures are increasing. “The warning lights are now flashing red on the UK as a competitive place to manufacture and invest,” he added, urging the government to act decisively to support growth and investment.

The KPMG/REC findings further illustrated that businesses are taking a measured approach to expansion. Many organisations reported holding off on major projects while evaluating how policy changes and interest rate adjustments might impact their long-term prospects. Holt explained that companies increasingly rely on flexible staffing arrangements to adapt to fluctuating demand without committing to permanent hires.

BDO’s latest report reinforced these concerns, highlighting that the optimism index had dropped to levels not seen since 2020. Knight stressed that clear guidance from the government is essential for stabilising confidence. Without decisive interventions, businesses may reduce investment or delay growth initiatives, potentially affecting the wider UK economy. Rising energy and employment costs remain the most cited challenges for businesses across regions.

While government officials emphasise policy achievements, surveys suggest the benefits are uneven. Some sectors, particularly manufacturing and technology, anticipate moderate gains from industrial strategies and targeted support programs. Yet other areas, including retail and hospitality, face significant cost pressures that dampen hiring intentions and reduce confidence in the broader business landscape.

Analysts argue that for UK business confidence to rebound, firms need both predictability and supportive financial measures. Companies are seeking clarity on interest rate expectations and sector-specific relief programs. Holt suggested that temporary staffing solutions can only bridge short-term gaps and do not replace the need for long-term stability.

The contrast between government optimism and actual survey results highlights the complexity of the UK economic recovery. Starmer’s assurances of improved living costs and energy relief may influence household spending, but they have limited immediate impact on corporate investment decisions. Firms are primarily motivated by operational stability and clear regulatory direction, which remain in short supply according to recent surveys.

Make UK and PwC highlighted that while industrial strategies provide opportunities, rising labour and energy costs threaten to discourage capital expenditure. Phipson warned that failure to address these pressures could drive investment overseas, potentially weakening the UK’s competitive position. The message from industry leaders is clear: government action must match rhetoric to restore business confidence and drive sustainable growth.

The REC survey noted that sectors with strong international exposure were particularly sensitive to cost pressures. Firms with export potential remain cautious, balancing competitive pricing with operational sustainability. Rising global inflation and fluctuating supply chains compound domestic challenges, leaving companies wary of rapid hiring or expansion.

BDO’s Knight reiterated that business confidence depends on predictable policies, stable costs, and access to growth incentives. Without these factors, firms may continue hiring conservatively, limiting economic recovery in the short term. He highlighted that even firms optimistic about future prospects must contend with immediate financial pressures that constrain workforce expansion and capital projects.

In summary, multiple surveys at the end of 2025 consistently indicate that UK business confidence is fragile, and hiring has slowed amid cost pressures. While government measures may improve household finances, the broader business landscape continues to grapple with uncertainty. Companies remain cautious, relying on temporary staff and delaying major investments, signalling that economic optimism has yet to fully translate into tangible recovery.

UK business confidence will likely remain a central concern for policymakers throughout 2026, as industry leaders emphasise the need for clear guidance and supportive measures. Without decisive action to reduce costs and foster a predictable business environment, the cautious approach observed at the end of 2025 is expected to continue. Analysts agree that bridging the gap between government optimism and actual corporate sentiment is critical for sustainable growth.

The evolving economic environment underscores that while policy interventions are important, business confidence ultimately depends on stable costs, transparent governance, and a competitive environment. Firms across sectors are adjusting to rising pressures while cautiously evaluating the next steps, making the early months of 2026 crucial for establishing momentum.

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