LONDON (Reuters) - Profits made by services firms, which dominate Britain's economy, have plunged and confidence has dried up especially among consumer-facing companies exposed to the cost-of-living crunch, according to an industry survey.

The Confederation of British Industry's quarterly survey of services firms, published on Thursday, showed profitability among business and professional firms fell to -37 in the three months to February, the fastest drop since August 2020 and down from -32 in the previous quarter.

Morale among consumer-facing firms remained at its joint-lowest since August 2022 at -55 in February.

The survey added to signs of concern among employers after finance minister Rachel Reeves increased the social security contributions paid by employers by 25 billion pounds in her first budget in October and announced a 6.7% rise in the minimum wage, both coming into force in April.

"While businesses are grappling with the rise in employment costs from measures in the autumn budget, it’s clear that underlying demand conditions remain weak too," the CBI's deputy chief economist Alpesh Paleja said.

"In particular, the much deeper weakness in consumer services firms points to a cautious spending mindset among households," Alpesh said.

Employment fell across both areas of the services sector and businesses expect to reduce staffing in the coming three months.

Thursday's survey chimed with the closely watched S&P Global PMI survey's gauge of employment which last week showed the sharpest fall in staffing levels in over four years in February.

The CBI's measure of volumes among business services firms in the three months to February fell sharply to -26 from -5 in the three months to November, and firms expect volumes to decline in the coming three months albeit at a slower pace.

Expectations for price increases among consumer-facing services companies and business and professional firms rose significantly compared with the previous survey.

The Bank of England is monitoring service prices closely as it tries to gauge the strength of underlying inflation pressures and the appropriate pace of further interest rate cuts.

The latest survey was based on responses from 517 services companies collected between January 28 and February 13.

(Reporting by Suban Abdulla; Editing by William Schomberg)