Employers are less optimistic about their companies' prospects than they were six months ago as rising costs significantly squeeze their profit margins, according to the latest CBI/RDA survey of Regional Economic Trends.

Despite increases in orders, output, employment and prices employers report their margins have fallen significantly in the year to September and expect them to shrink further over the coming year. The only firms to maintain their margins are in London as average prices in the capital keep pace with rising costs.

Employers say staff costs and higher energy prices are expected to be the main sources of increased costs in the coming six months. The factors cited as the most likely to inhibit growth are red tape, transport costs and inadequate support from government.

A balance of +7 of employers said employment is up on a year ago with the East Midlands reporting the strongest growth (+16) and London and the South-West also performing well. But employment fell in the South-East and West Midlands, with companies in the latter region expecting it to fall again over the next year.

Two-thirds of firms pay for staff training, rising to three-quarters in the East of England, the West Midlands and the North-East.