By HUGO DUNCAN

Published: 00:23 GMT, 12 January 2026 | Updated: 00:49 GMT, 12 January 2026

Business confidence collapsed after the Budget and companies put the brakes on hiring – setting the scene for another bleak year for the economy, experts warned yesterday.

In a report that piles more pressure on beleaguered Chancellor Rachel Reeves, the accountancy group BDO said morale among firms fell to its lowest level in nearly five years last month.

A separate survey by accountants KPMG and the Recruitment & Employment Confederation (REC) showed hiring slowed to a crawl at the end of 2025 as demand for staff 'continued to weaken'.

REC chief executive Neil Carberry said: 'Making this a better year for hiring will require a focus on building business confidence to invest.'

But this could be an uphill struggle following a second tax-raising Budget, a further inflation-busting increase to the minimum wage and Labour's updated rights for workers. 

Tory business spokesman Andrew Griffith said: 'These surveys show that business confidence is collapsing about as fast as the Prime Minister's popularity.

'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'. 

In a report that piles more pressure on beleaguered Chancellor Rachel Reeves, the accountancy group BDO said morale among firms fell to its lowest level in nearly five years last month 

This data should be another wake-up call to the Chancellor.' BDO said its 'optimism index' among businesses fell last month to its lowest level since January 2021 – meaning firms are the most pessimistic they have been since the pandemic.

The report found the decline in confidence was 'broad-based across both manufacturing and services'. 

And it said 'subdued confidence and high operating costs continue to weigh down on growth' as the economy stagnates and unemployment rises.

It added: 'The close relationship between business confidence and economic activity suggests that persistently low optimism is likely to keep output constrained.'

Scott Knight, head of growth at BDO, said: '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 added: 'Decisive action – like further interest rate deductions and a clear roadmap of what's ahead – is critical if they're to grow and invest.'

The latest UK Report On Jobs by KPMG and the REC found permanent placements fell at the sharpest rate since August in December as firms reeled from the November Budget.