UK business confidence weakened sharply at the end of 2025, with hiring slowing amid rising costs and uncertainty over the economic outlook, according to several key surveys. The decline contrasts with Prime Minister Keir Starmer’s upbeat message for the new year, which suggested that Britons would soon feel wealthier thanks to cuts in energy bills, lower interest rates, and the end of the two-child benefit cap. Despite these reassurances, the jobs market showed signs of strain. Full-time and temporary appointments fell in December, according to a report by accountants KPMG and the Recruitment and Employment Confederation (REC). Jon Holt, group chief executive of KPMG, said the job market was still cautious. “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,” he said. “As we head into the new year, this restraint is likely to remain in the near term.” The slowdown in hiring comes as UK businesses face higher costs for energy, materials, and wages, putting pressure on budgets and investment plans. These factors were reflected in BDO’s latest business trends report, which found that overall business optimism had fallen to its lowest level in nearly five years. Scott Knight, head of growth at BDO, said rising costs and falling turnover expectations were behind the slump in confidence. “Business costs are rising and turnover expectations are falling; it’s no wonder that optimism is on the floor,” he said. Knight added that decisive action from the government, such as interest rate reductions and a clear roadmap for growth, would be needed to restore confidence. The surveys paint a mixed picture for 2026. While the overall economy shows caution, some sectors, particularly manufacturing, have a more positive outlook. A survey by Make UK and PwC found that most manufacturers believe the opportunities for success outweigh the risks this year. The study credited the government’s industrial strategy, introduced last year, with creating potential growth prospects for the sector. However, the same survey warned that rising costs, particularly in employment and energy, could force businesses to delay or cancel investment plans, or even relocate overseas. Stephen Phipson, chief executive of Make UK, said manufacturers could only thrive in a favorable business environment. “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.” The divergence between government optimism and business caution highlights the challenge facing policymakers as they attempt to stimulate growth while controlling costs. Starmer’s briefings emphasized improving living standards and economic stability, yet firms appear focused on immediate pressures, such as rising energy bills, wage demands, and global uncertainty. Analysts say the next few months will be critical for UK businesses and the wider economy. Firms may continue to limit hiring, delay capital projects, or seek efficiency improvements to offset rising costs. At the same time, the government will need to balance fiscal and monetary policies to avoid undermining investment confidence. Overall, the surveys show that UK businesses entered 2026 with caution. Hiring slowed, optimism fell, and cost pressures remain high. While some sectors see opportunities, many companies are waiting for clearer signals from policymakers before committing to new projects or expanding workforces. The coming months will test whether government strategies and industrial initiatives can overcome economic uncertainty, restore confidence, and support growth across all sectors of the UK economy.