Business sentiment improved slightly in December, according to new data from the Institute of Directors, but employers continue to rein in hiring and delay investment amid ongoing cost pressures and regulatory uncertainty.
The IoD’s Directors’ Economic Confidence Index, which measures business leaders’ optimism about the wider UK economy, rose to -66 in December, up from -73 in November, taken just before the Budget was published.
However, respondents’ confidence in their own companies remained effectively unchanged at -4, compared to -5 the previous month, showing that improving sentiment is not yet reflected in stronger business plans.
Hiring freezes and delayed investments remain in place
Forward-looking indicators included in the survey suggest that companies remain cautious: headcount expectations fall from -8 to -14, while investment intentions fall from -17 to -21.
The data suggests that while uncertainty has eased in the immediate aftermath of the budget release, structural concerns over employment costs, taxation and regulation continue to have a major influence on decision-making.
Anna Leach, chief economist at the IoD, said that while the increase in December was welcome, it should not be overstated.
“After months of political uncertainty at the end of last year, it is a relief to see business leaders taking a slightly more positive approach to the holidays,” she said. “But confidence remains close to the record lows reached during the first Covid lockdown and after the last two budgets.”
Leach noted that greater fiscal space and the decision not to review fiscal rules in the OBR’s spring update could reduce short-term political volatility. However, she warned that this alone would not be enough to significantly improve growth prospects.
Free-text responses commonly cited hiring freezes and canceled capital expenditures, reflecting widespread cash conservation strategies in the private sector.
The results highlight a fragile recovery in sentiment, but one that remains heavily dependent on policy decisions in 2026.
