Confidence among British businesses has sunk to its lowest since March 2021 as companies worry about fast-rising inflation, according to a survey published on Wednesday which also showed pay pressures stabilising after a recent rise.

Lloyds Bank said its monthly business barometer dropped to 16% in August from 25% in July, with companies more worried about rising prices than economic slowdown.

"Business confidence declined for a third consecutive month as firms continue to face economic challenges in the period ahead and as inflation concerns intensify," Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said.

Wage and price pressures remained elevated but there were some brighter points as demand for staff held up and firms reported less concern about staffing and the coronavirus pandemic, Ho said.

While 38% of firms expected to increase headcount in the year ahead, the proportion thinking of raising pay by at least 3% fell slightly to 26% from 28% in July.

The Bank of England is monitoring pay pressures closely as it considers how much further it needs to raise interest rates to snuff out the risk that the recent 40-year high in inflation will fundamentally alter the public's assessment of the long-term path for prices.

(Writing by William Schomberg; editing by David Milliken)