REGULATION and red tape is seen by business as the primary factor inhibiting development, according to the latest research by the CBI and the Regional Development Agencies.

Availability of finance, and inadequate government support, are the second and third most significant issues identified by companies in the fifth Regional Survey of Economic Trends.

The fifth Regional Survey of Economic Trends of 3,000 businesses asked how they have fared over the last year, how they expect things to change over the next 12 months, and what key strategic issues are likely to affect their success.

Profit margins fell across all regions, except in London where they were broadly unchanged.

The South East, along with Scotland, saw the most significant declines in profitability. This was despite domestic orders, output and employment increasing at a reasonable pace.

Businesses achieved a modest increase in selling prices, but only a small minority were able to pass on cost increases in full - explaining the decline in profit margins.

While businesses are still predicting increased investment for the future, they are less optimistic than six months ago.

Malcolm Hyde, CBI South East regional director, said: "Overall, the economic outlook remains one of growth, and these results and expectations are consistent with our forecasts.

"However, the pattern of growth has been uneven and is likely to remain so, with retailers and manufacturers suffering.

"Clear risks remain, not least from the impact of high oil prices on world demand, and of the weak housing market on consumer spending.

"Profit margins are likely to remain under pressure."