Highlights
- BDO's optimism index dropped to lowest level in nearly five years as business costs rise and turnover expectations fall.
- Full-time and temporary job appointments fell in December with firms pausing hiring due to cost pressures.
- Manufacturers warn significant cost increases threaten to reach 'tipping point' forcing investment cancellations or overseas shifts.
UK business confidence weakened sharply at the end of 2025, with hiring falling amid rising costs and uncertainty about the economic outlook, according to key business surveys released this week.
The findings contrast sharply with prime minister Keir Starmer's optimistic New Year message that the country was about to start feeling richer again, as multiple indicators point to continued economic challenges.
BDO's latest business trends report revealed that its "optimism index" fell to its lowest level in nearly five years. Scott Knight, head of growth at BDO, said business costs are rising while 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," he told The Guardian.
The jobs market showed similar weakness, with both full-time and temporary appointments falling in December, according to a study by accountants KPMG and the Recruitment and Employment Confederation (REC).
Jon Holt, group chief executive of KPMG, noted that 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," he told The Guardian.
Manufacturing outlook
Starmer kicked off 2026 with a series of briefings about how Britons would soon notice an improving economy, citing his government's success in bringing down living costs through cuts to energy bills and interest rates as well as the end of the two-child benefit cap.
However, a third economic survey offered mixed news for Downing Street. Britain's manufacturers believe the introduction of the government's industrial strategy last year will boost their growth prospects in 2026, with a majority believing opportunities outweigh risks this year, according to an annual survey from Make UK and accounting group PwC.
Yet Make UK warned that 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, chief executive of Make UK, pointed that manufacturers could only thrive "in the most favourable business environment."
He added, "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."
