UK companies reduced headcount at the sharpest pace since late 2021, with a Bank of England survey revealing a 0.5% fall in employment over the three months to August.

The figures point to growing caution among finance chiefs, who also expect staffing levels to decline by a similar margin over the next year. This marks the bleakest employment forecast since October 2020, when businesses were reeling from the pandemic.

Firms said rising costs were behind the cuts, following increases to the national minimum wage, national insurance contributions and business rates that took effect in April. The squeeze has been compounded by Donald Trump’s overhaul of US tariffs earlier this year, which has heightened global trade uncertainty.

Two-thirds of businesses reported lower profits since April, according to the survey, with a third saying they have raised prices and nearly half cutting staff in response.

The data comes ahead of the government’s autumn budget in November, with speculation mounting that chancellor Rachel Reeves may announce further tax rises.

The survey highlights the pressure facing businesses of all sizes as they juggle soaring costs and a weak economic outlook, raising concerns over investment and job creation in the months ahead.