Business confidence dropped significantly in March (down 11 points to 33 per cent), but remained above the long-term average, according to the latest Lloyds Bank Business Barometer.

The fall in confidence was the biggest since the first two months of the pandemic when it dropped by 17 points and 38 points in March and April 2020 respectively as overall sentiment in March 2022 reached its lowest level since August 2021 (36 per cent).

However, the Barometer level remains above the long-term average (28 per cent) due to confidence having been relatively buoyant in recent months.

An 11-point fall in both trading prospects (down to 34 per cent from 45% per cent) and economic optimism (down to 32 per cent from 43 per cent) drove March's drop in confidence. Both fell to their lowest levels since the summer of 2021.

Hiring intentions were more downbeat in March, but remain higher than the start of the year (29 per cent). Nearly half of firms (49 per cent), down from 52 per cent, expect to increase their headcount in the next 12 months, while 18 per cent (up from 14 per cent) expect to reduce. The net balance fell by seven points to 31 per cent, but continues to signal strong demand, particularly since the end of the furlough scheme in September 2021.

The ongoing pay pressures experienced by businesses remained, with a record 49 per cent expecting average pay growth of at least two per cent in the next 12 months, an increase of 32 per cent points since March 2021.

Furthermore, the ongoing inflationary pressures meant that, for the fifth consecutive month, at least half of firms expect to raise prices in the next 12 months. In March, a record 55 per cent (up three points from 52 per cent) expected to charge higher prices, while only four per cent (unchanged) anticipate lower prices. This creates a new high net balance of 51 per cent (up three points from 48 per cent).

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: "March's data shows UK businesses are facing significant challenges from the impact of Russia's invasion of Ukraine in increasing economic uncertainty and ongoing inflationary pressures. Following encouraging improvements at the start of the year, March's fall in confidence is therefore disappointing, but not surprising.

"There are positives with the fact that confidence remains above the long-term average and it appears for now that growth will moderate. But it is difficult to gauge what the full impact will be and therefore businesses have become more cautious."