The cost of training and recruitment is sapping business profit margins, the CBI claims.

The results from the employers’ body and the Regional Development Agencies (RDAs) show that business prospects have improved over the past year but profits have fallen.

Demand, output and job opportunities have continued to increase over the last 12 months, but more firms have seen profits drop since the previous survey.

Almost half (41%) of companies identified employee costs as the biggest financial pressure. This increased to more than half of firms in London and the East of England.

The CBI said that training and retraining is still the most significant area for increased investment because a skilled workforce is essential to business competitiveness.

Terry Hodgkinson, spokesman for the RDAs, welcomed training investment to improve global competitiveness.

“We support the drive to raise skill levels across the regions and will continue to work with the government to ensure that business gets the training it needs to compete in the fast-moving global economy,” he said.