Employment growth in UK small businesses has slowed significantly, with year-on-year growth falling from 7.8% in December 2024 to just 2.5% in December 2025 according to new data from Employment Hero.
The latest Jobs Report, based on real-time data from over 115,000 employee records within small businesses, reveals that the traditional December seasonal hiring surge failed to materialise, with employment rising only 0.5% month-on-month - the lowest monthly increase observed since April 2025.
The muted growth suggests small businesses remain cautious following the October 2025 Autumn Budget, which many felt did little to support them. Retail and hospitality sectors were particularly affected, with employment actually contracting by 2% in December, opposing the expected seasonal spike when employers typically take on extra staff to meet heightened consumer demand.
Employment Hero has been tracking these trends throughout 2025, revealing the real-world impact of the Autumn Budget and subsequent employment law updates. Small businesses responded immediately to these changes, with a sharp monthly employment decline of -1.1% recorded in April 2025, setting off a chain of events that shaped employment patterns for the rest of the year.
Kevin Fitzgerald, UK Managing Director at Employment Hero, said: "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. 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."
However, separate research suggests business leaders remain bullish about their own prospects despite the challenging backdrop. Vistage's quarterly CEO Confidence Index, based on surveys of around 134 business leaders who are members of the CEO development organisation, has climbed to 93.6, up from 88 in Q3 2025, revealing a striking disconnect between how leaders view external conditions and their confidence in their own organisations.
While more than half (54%) say economic conditions have worsened over the past year and 39% expect further deterioration ahead, almost two-thirds (63%) anticipate their own sales revenues will increase over the next 12 months.
Speaking to Management-Issues, Rebecca Drew, Managing Director, Vistage UK and Ireland said: "Despite ongoing economic uncertainty, SME leaders remain confident in their own organisations and are continuing to invest in growth - from new products, and technology to leadership development. This confident mindset is already shaping recruitment trends, as CEOs recognise that these plans will only succeed if they have the right people around in the right role.
However, many SMEs find it difficult to pinpoint the skills and behaviours they need to reach the next level. In response, we’re seeing a clear shift in hiring practices: CEOs are taking a deliberate approach at every stage, from job applications through to onboarding, and early performance. They are defining the skills they will need, shaping role propositions around their values and culture, and promoting opportunities clearly. This isn’t just about filling positions - it’s an investment in the teams that will drive growth, ensuring new hires can contribute quickly and support the business over the long term.
Instead of placing their confidence in the economy, they are relying on the strength of their company and teams to push forward and achieve their growth ambitions for 2026. The journey to the top won’t be easy for CEOs, but with the right people, and the right approach, those ambitions are achievable".
Looking ahead, small business leaders face additional challenges, with the Employment Rights Bill coming into force in April 2026. Fitzgerald added: "This is a real opportunity for the government to provide clear guidance and work collaboratively with small businesses, helping them plan and grow."
The contrasting data highlights the complex picture facing UK small businesses: while employment growth has stalled and caution prevails in hiring decisions, many leaders remain confident in their ability to navigate difficult conditions and invest for future growth, even as they brace for further regulatory changes ahead.
