Fresh economic surveys have painted a sobering picture of the UK's business landscape at the close of 2025, revealing a sharp decline in confidence and a contraction in hiring. This data stands in stark contrast to Prime Minister Keir Starmer's recent optimistic messaging about the nation's economic prospects.
Jobs Market Signals Caution
According to a joint study by the accountants KPMG and the Recruitment and Employment Confederation (REC), the UK jobs market weakened in December 2025. The report showed that both full-time and temporary appointments fell, indicating a growing hesitancy among employers.
Jon Holt, the group chief executive of KPMG, stated that the market was "still signalling caution." He attributed the trend to prolonged cost pressures and heightened global economic uncertainty, leading many firms to pause permanent hiring and rely more on temporary staff. Holt suggested this restraint was likely to continue in the near term.
Business Optimism Hits Five-Year Low
This jobs market caution was mirrored in broader business sentiment. The latest Business Trends Report from accountancy firm BDO found that UK business confidence "weakened sharply" at the end of 2025. BDO's 'optimism index' plummeted to its lowest level in nearly five years.
Scott Knight, Head of Growth at BDO, explained the downturn: "Business costs are rising and turnover expectations are falling; it’s no wonder that optimism is on the floor." He called for decisive action, including further interest rate cuts and a clear government roadmap, to encourage business growth and investment.
Manufacturers See a Glimmer of Hope
Amid the gloomy headlines, a separate survey provided a more nuanced outlook for one key sector. An annual study by the manufacturers' organisation Make UK and the accounting group PwC found that a majority of UK manufacturers believe the opportunities for their business outweigh the risks in 2026.
This cautious optimism is partly linked to the government's industrial strategy, introduced the previous year, which many believe will boost growth prospects. However, the report also carried a stark warning. Make UK cautioned that significant increases in business costs, particularly for employment and energy, were approaching a "tipping point" that could force companies to cancel or move investment plans overseas.
Stephen Phipson, Chief Executive of Make UK, emphasised that manufacturers need a favourable environment to thrive. "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," he said. "The government promised significant change; now is the time to deliver it."
This mixed economic data arrives as Prime Minister Keir Starmer began 2026 by briefing that Britons would soon feel an improving economy, citing cuts to energy bills and interest rates, along with the end of the two-child benefit cap, as evidence of progress on living costs.
