Britain's services businesses reported a record increase in costs over the past three months and are downbeat about the future, as inflationary headwinds look set to squeeze demand further, the Confederation of British Industry said on Tuesday.

The CBI's overall business optimism balance - which measures the difference between the percentage of firms who are upbeat and downbeat - sank to its weakest since May 2020, the height of the COVID-19 pandemic, for both consumer and business services.

"There are slim pickings for those looking for positive signals in the services sector over the last quarter. Just as rising inflation is hurting households and every business sector, the services industry is no different," said Charlotte Dendy, the CBI's head of economic surveys.

British consumer price inflation hit 10.1% in July and the Bank of England forecasts it will peak above 13% in October, when regulated household energy bills are due to rise by 80% to an annual average of 3,549 pounds ($4,169).

Businesses sharply raised the prices they charged customers, by the most since 2006 in the consumer sector and by the most in more than 20 years for business and professional services companies, but profit margins still shrank, the CBI said.

The CBI data was based on a survey of 199 firms between July 26 and Aug. 15.

($1 = 0.8513 pounds)

(Editing by David Milliken)