Employment growth among UK small businesses showed little momentum at the end of 2025, with new figures pointing to a continued slowdown in hiring following the autumn Budget.
While employment edged up slightly in December, the increase fell well short of the seasonal boost typically seen at that time of year.
The figures suggest many small employers remain cautious about taking on staff, particularly in consumer-facing sectors. Retail and hospitality both recorded a fall in employment during December, bucking the usual trend of festive hiring and signalling ongoing uncertainty about demand and costs.
Over the longer term, the pace of growth has eased sharply. Year-on-year employment growth among small businesses has dropped significantly compared with the previous year, underlining how confidence has weakened since the Budget and subsequent policy changes.
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Seasonal hiring fails to materialise
The findings come from the latest Jobs Report published by HR and payroll software provider Employment Hero, which analysed real-time employment data from more than 115,000 employee records across UK small businesses. The data showed employment rose by just 0.5 percent month on month in December, the weakest increase since April.
Retail and hospitality were the hardest hit, with employment contracting by 2 percent during the month. The decline runs counter to expectations of a year-end recruitment spike and points to continued restraint among employers facing higher operating costs and economic uncertainty.
The data also shows a marked slowdown over the past year. Annual employment growth fell from 7.8 percent in December 2024 to 2.5 percent in December 2025, reflecting a sustained cooling in hiring activity across the small business sector.
Budget impact continues to weigh on confidence
The report links the slowdown to the aftermath of the 2025 Autumn Budget and subsequent employment law changes. Small businesses, which employ the majority of the UK workforce, responded quickly to those changes earlier in the year, with employment falling sharply in April before stabilising at a lower growth rate.
Kevin Fitzgerald, UK managing director of Employment Hero, said the data showed how policy decisions were shaping employer behaviour. He said small businesses remained resilient but cautious, with many holding back on recruitment as they adjusted to the post-Budget environment.
“We’ve been tracking employment trends across the UK for a full year and the data makes clear the real-world impact that policy has on small businesses,” he said. “Our latest figures show that, while small businesses remain resilient, they are cautious, with employment growth slowing and the usual seasonal surge failing to materialise.”
Focus turns to employment law changes
Fitzgerald said attention was now turning to the Employment Rights Act, which many small business leaders are already factoring into their plans.
“Looking ahead, the Employment Rights Bill will be front of mind for many small business leaders, who will be considering how best to navigate the changes coming into force in April 2026,” he said. “This is a real opportunity for the government to provide clear guidance and work collaboratively with small businesses, helping them plan and grow.”
The December figures suggest that without greater clarity and support, hiring among small employers may remain subdued into the new year, particularly in sectors already under pressure from weak consumer demand.
