Employers are less optimistic about their companies’ prospects than they were six months ago as rising costs significantly squeeze their profit margins, the latest CBI/RDA survey of Regional Economic Trends reveals.
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.
The twice-a-year survey, produced by the CBI and the Regional Development Agencies, covers all sectors of the economy, including public sector organisations where appropriate.
More than 2,600 companies responded from across England and Scotland.
Doug Godden, the CBI’s head of economic analysis, says: “It is pleasing that orders, output and jobs have increased so robustly over the past year.
“The majority of regions have shared in this growth and more of the same is expected in the year ahead.
“Nevertheless, optimism about the overall business situation has slipped, most likely because of the tight squeeze on profit margins, and cost pressures clearly remain a key concern going forward.”
Terry Hodgkinson, chair of Yorkshire Forward, which represents the RDA network with the CBI, adds: “Yet again the partnership working between the CBI and the RDA network has provided an excellent insight into the factors affecting business and employers’ sentiment in our regions.
“Although business confidence has slipped comparative to six months ago, this seems largely dependant on concerns over profit margins and staff costs.
“The bedrock of trading stability – domestic order growth and exports – has remained strong, indicating an optimistic situation overall.”
The survey shows 44% of businesses have adopted a recycling scheme in the past year and a fifth have a sustainable procurement policy, rising to one in four in the East of England, South West and North West.
A fifth of all firms monitor the procurement of recycled content products but only one in 10 set themselves targets and, interestingly, firms in the East of England the least likely to do so.
Half of all employers regard corporate social responsibility as a relevant issue to their business with firms in London the most likely to do so (57%) and those in the South East and Scotland the least likely (both 37%).
The areas reported on, ranked by most to least common, are the workplace, the local community and the environment.
Three-quarters of employers say their business has developed through the application of new ideas in the past year and 22% have a formal documented process to generate and nurture new ideas.
Two-thirds of firms pay for staff training, rising to three-quarters in the East of England, the West Midlands and the North East.
But only a quarter of firms who pay for training do so for more than half of staff. Marketing is the skill most in need of improvement, followed by management.