British businesses became more downbeat about the economic outlook in December, with the biggest monthly decline in confidence in more than a year, a survey showed on Thursday, adding to signs of a slowdown in the country's economy.

The Lloyds Bank Business Barometer, which surveyed 1,200 firms across the economy, fell by seven points to 35% from November's 21-month high of 42%, and the largest monthly fall since August 2022.

Thursday's reading was still above the survey's long-run average of 28%, but heading in a downward direction. This contrasts with the similar composite S&P Purchasing Managers' Index for services and manufacturing, which beat expectations last week but remains weak by historic standards.

Last week the Bank of England revised down its near-term forecast for output, which is now expected to be "broadly flat" in the final quarter of this year, and held interest rates at 5.25% for the third meeting in a row after 14 back-to-back increases since late 2021.

Official figures showed Britain's gross domestic product shrank 0.3% in October.

Paul Gordon, a managing director at Lloyds Bank, said the economic outlook "remains tough", and that businesses should prioritise a strong cashflow and look carefully at staffing.

Lloyds' survey showed hiring intentions cooled but the proportion of companies planning to raise salaries rose. Pricing expectations fell for the first time since July.

"Businesses are also balancing cost pressures with a challenging labour market that will see increases to minimum wage in April 2024 ... at a time when they are managing staff retention and recruitment decisions," Hann-Ju Ho, senior economist at Lloyds, said.

The survey was conducted Nov. 28 and Dec. 12, after finance minister Jeremy Hunt announced budget measures, including making permanent the tax incentives for business investment which had been due to expire in March 2025.

(Reporting by Suban Abdulla; editing by David Milliken)