Business confidence has significantly declined following the latest Budget, leading to a sharp slowdown in hiring and setting the stage for a difficult year ahead for both jobs and businesses. According to a report released by the accountancy group BDO, morale among firms has dropped to its lowest level in nearly five years. This downturn comes as many companies grapple with rising operational costs and a diminishing demand for staff.
A separate survey conducted by KPMG in collaboration with the Recruitment & Employment Confederation (REC) revealed a marked slowdown in recruitment activity, with companies hesitant to expand their workforce as the effects of the Budget become more evident. REC Chief Executive Neil Carberry emphasized the necessity of fostering business confidence to encourage investment and hiring.
Economic Challenges Heighten Amid Tax Increases
Experts are warning that the recent tax-raising measures and an increase in the minimum wage are contributing to a challenging economic environment. Andrew Griffith, the Conservative Party’s business spokesman, highlighted the connection between plummeting business confidence and the Prime Minister’s declining popularity. He remarked, “Businesses are not hiring or investing, held back by low consumer demand, higher employment costs, and the impact of Labour’s ‘Unemployment Bill.’”
The BDO report indicated a significant drop in their optimism index, which fell to its lowest point since January 2021. This suggests that businesses are feeling more pessimistic than they have since the onset of the pandemic. The report noted that the decline in confidence is widespread, affecting both the manufacturing and services sectors.
Job Market Faces Increased Uncertainty
The latest UK Report On Jobs from KPMG and REC also pointed to a troubling trend in recruitment. Permanent placements fell at the fastest rate since August 2025, highlighting a cautious approach among employers. “Uncertainty around the economic outlook and rising costs weighed on recruitment activity at the end of 2025,” the report stated.
Jon Holt, Chief Executive and UK Senior Partner at KPMG, added that the jobs market is still signaling caution. Firms are increasingly relying on temporary staff while pausing hiring decisions, as many executives focus on investing in technology to enhance resilience and productivity rather than expanding their workforce.
As the economic landscape remains fraught with challenges, the call for decisive action from policymakers grows louder. Scott Knight, Head of Growth at BDO, urged for measures such as reducing interest rates and providing a clear roadmap for businesses to navigate the uncertain environment. The pressure is mounting on Chancellor Rachel Reeves to address the growing concerns and restore confidence in the economy.
As 2026 progresses, businesses and workers alike are left to ponder the implications of this turbulent economic climate on job security and growth prospects.
