Employers are feeling less optimistic compared to six months ago, with rising staff costs and energy prices driving profits down, a new survey says.
The half-yearly regional economic trends report from the Confederation of British Industry and the Regional Development Agencies says that the pessimistic outlook comes about despite orders, output, employment and prices all increasing.
After polling more than 2,600 companies and enterprises from both the private and public sectors in England and Wales, overall business confidence is currently at plus seven, compared to April's barometer reading of plus 12.
The south-west and north-east are the most positive regions in terms of business with confidence levels of 17 and 14 respectively, but optimism took a dive in the north-east, with the index shrinking 20 points to minus one.
Of the firms polled, 41 per cent highlighted staff costs as the main reason for a lack of festive cheer, but the majority of organisations in the south-west, Scotland and East Midlands blamed rising energy prices.
Despite the index reading plus 16 for orders and plus 19 for prices, the CBI's barometer reading for profits currently stands at minus 16.
Commenting on the survey, Doug Godden, head of economic analysis at the lobby group, insisted that there were still reasons to be cheerful.
"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," he said.
But Mr Godden added: "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."
Meanwhile, Terry Hodkinson, chair of Yorkshire Forward, which represents the RDA network with the CBI, explained that the "bedrock of trading stability; domestic order growth and exports; has remained strong, indicating an optimistic situation overall".