Update using Sub Select SQLServer
As a workaround, try using the RIGHT function to avoid the length overflow. 

Just drop whatever the max length of your (I'm assuming) CHAR column in the query where I made a note.

update emp
set region_ref = RIGHT('UK_' + emp.REGION_REF , /*put the max length of your column here*/)
from EMPLOYEES emp
inner join REGIONS reg
on emp.region_no=reg.REGION_NO
where emp.region_no in (select region_no from UKREGIONS);