Employer confidence in the UK economy showed a slight improvement heading into 2025, according to the latest REC JobsOutlook report.

While the impact of the Autumn Budget on businesses remains a concern, the data suggests that economic forecasts may have underestimated potential resilience.

A survey of 634 UK employers found that while perceptions of the economy remain negative, confidence improved by three points to (net: -25) in the three months to December, compared to (net: -28) in the previous quarter.

Confidence in making investment and hiring decisions dropped slightly, falling by three points from (net: -2) to (net: -5). However, this decline was largely driven by heightened concerns in November when the index fell to (net: -17), before rebounding to positive territory (net: +2) in December. Despite challenges, some businesses remain optimistic about hiring, particularly in certain regions and company sizes.

Hiring Trends: Regional and Sector Variations

Medium-sized companies (50-249 employees) show greater optimism about hiring both permanent and temporary staff compared to both smaller and larger employers. Private sector demand for temporary workers remains significantly stronger than in the public sector. The data indicates that, while hiring intentions have been affected by economic uncertainty, businesses are still looking to fill roles in key areas.

Neil Carberry, Chief Executive of REC, said, “There can be no doubt that the Budget created headwinds for companies all over the country. But these data show that the economy is bigger than government policy, with employers’ confidence holding steady as we head into 2025. The growth re-set that the Chancellor has been talking about is vital to keeping up momentum now.

“In 2025, the government needs to be a source of tailwinds for firms as they speed for growth. A balanced view of today’s report shows there is opportunity out there for businesses and candidates alike, but more to do to grasp it. Making sure that the industrial strategy tackles long-term challenges like infrastructure, skills, and taxation with more of a can-do attitude will be vital.”

Budget Impact on Hiring Intentions

Despite encouraging signs, tax rises announced in the Autumn Budget have influenced workforce planning. Around 14 percent of surveyed employers reported plans to reduce their permanent headcount in the next three months, a sharp increase from 5 percent in the three months to October. The trend was driven by sentiment in November and December, when the proportion of businesses planning job cuts rose to 15 percent and 18 percent, respectively, from just 4 percent in October.

Short-term permanent hiring intentions weakened, with growth expectations falling to (net: +5), a seven-point decline from the previous quarter. Similarly, medium-term permanent hiring intentions dropped by eight points to (net: +4).

The use of temporary and contract workers also showed a shift. The balance of sentiment towards short-term temporary hiring turned slightly negative, declining from (net: +5) in the three months to October to (net: -2) in the three months to December. However, despite a four-point drop, medium-term temporary hiring plans remained marginally positive at (net: +1).

Neil Carberry added, “The Autumn Budget’s rise in National Insurance has clearly had an impact on hiring intentions, with firms affected by the reduction in the threshold particularly hard hit. The increase in employers planning to reduce headcount is a concern, but still small at this stage.

“The UK’s labour market is among the most competitive globally, and it is only becoming more challenging. As recruitment specialists, we see that businesses must adapt their approach to make the most of their talent and the new technologies at their disposal. Hiring isn’t just a task – it should be a strategic priority. Too many companies haven’t yet grasped that.”