Business confidence has sharply declined following the recent Budget announcement, leading to significant concerns for the jobs market and the overall economy. The accountancy group BDO reported that morale among firms hit its lowest point in nearly five years, as companies slowed hiring amid a challenging economic landscape.
In a detailed analysis published on January 12, 2026, BDO revealed that its optimism index fell to its lowest level since January 2021. This downturn indicates that businesses are experiencing the most significant pessimism since the onset of the pandemic. The report noted a broad-based decline in confidence across both the manufacturing and services sectors, suggesting that subdued optimism and rising operational costs are dampening growth prospects.
A separate survey conducted by KPMG and the Recruitment & Employment Confederation (REC) highlighted that hiring activity has come to a near standstill as demand for staff continues to weaken. Neil Carberry, CEO of the REC, emphasized that improving the hiring landscape would require a renewed focus on bolstering business confidence to encourage investment.
The budgetary adjustments, including a second tax increase and a rise in the minimum wage, are seen as contributing factors to the current situation. Andrew Griffith, the Conservative Party’s business spokesman, noted that the surveys reflect a rapid decline in business confidence, paralleling the drop in the Prime Minister’s popularity. He stated, “Businesses are not hiring or investing, held back by low consumer demand, higher employment costs, and the impact of Labour’s red tape ‘Unemployment Bill’.”
The BDO report also indicated that high operating costs continue to hinder growth, with businesses feeling the strain of stagnant economic activity and rising unemployment. The report warned that the close relationship between business confidence and economic performance means that persistently low optimism could keep output constrained.
Scott Knight, head of growth at BDO, remarked, “Business confidence is at its weakest in years. It is far from ideal. Business costs are rising and turnover expectations are falling. It’s no wonder that optimism is on the floor.” He stressed the need for decisive action, including potential interest rate reductions, to inspire growth and investment.
The UK Report on Jobs released by KPMG and the REC further illustrated the precarious situation, revealing that permanent placements fell at the sharpest rate since August 2025. The report attributed this decline to uncertainty surrounding the economic outlook and rising costs, stating, “Permanent staff appointments fell at the quickest rate in four months.”
Jon Holt, chief executive and UK senior partner at KPMG, echoed these sentiments, noting, “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 chief executives prioritising investment in technology would be looking for signs of greater confidence in the broader economy before resuming hiring practices.
This drop in business confidence presents a challenging landscape for the government, particularly for Chancellor Rachel Reeves, who faces mounting pressure to implement measures that could stimulate economic recovery and restore optimism among businesses. As the situation unfolds, stakeholders across various sectors will be watching closely for any indications of change in the economic climate.
