Business confidence among UK company directors improved slightly in December, but remains close to levels last seen during the first Covid lockdown, according to new data from the Institute of Directors.

The IoD’s Directors’ Economic Confidence Index, which tracks optimism about the wider UK economy, rose to minus 66 in December from minus 73 in November, when sentiment was surveyed ahead of the autumn Budget. While the increase suggests some easing of anxiety over the festive period, confidence remains deeply negative by historical standards.

Views on prospects for respondents’ own organisations were largely unchanged. The index measuring confidence at company level stood at minus 4 in December, compared with minus 5 the previous month, indicating that most directors see little immediate improvement in trading conditions.

Behind the headline figures, forward-looking indicators paint a cautious picture. Expectations for hiring weakened, with headcount plans falling to minus 14 from minus 8 in November. Investment intentions also deteriorated, slipping to minus 21 from minus 17, as firms continue to delay or cancel spending plans. Revenue and export expectations were broadly stable, while cost pressures, though still elevated, eased marginally.

Anna Leach, chief economist at the Institute of Directors, said the slight improvement in sentiment should be seen in context. She noted that confidence remains close to record lows and that many firms are still grappling with uncertainty over costs, taxation and employment regulation. While the passing of the Budget and an increase in fiscal headroom may reduce policy volatility in the year ahead, she said this alone would not be enough to materially improve the UK’s economic outlook.

Survey responses suggest that cost concerns remain acute, particularly around labour. Hiring freezes are widespread, and many companies are conserving cash amid fears of further cost increases linked to tax changes and proposed reforms to employment law. Investment plans, Leach added, are being postponed rather than accelerated.

When asked what would most improve confidence in 2026, directors pointed overwhelmingly to a lower tax burden and a scaling back of proposed employment law changes. Simplified regulation, progress on EU trade relations, lower energy costs and reduced tax complexity also featured prominently, highlighting areas where businesses see scope for policy action.

The survey, conducted between 19 and 31 December among more than 500 business leaders, reinforces the message that while sentiment may have stabilised slightly, confidence remains fragile. For many directors, a sustained recovery will depend less on short-term fiscal adjustments and more on clear, credible policies that reduce costs and support investment over the longer term.