Businesses in the South-East are suffering falling profits because of a lack of new orders.

The Lloyds TSB Corporate Business in Britain survey reveals a deteriorating business environment, with 40 per cent of firms reporting a decrease in profits compared to 28 per cent where profits rose - 11 per cent worse than the national average.

Firms have been tackling costs but competition from home and abroad has meant prices have remained static.

This has had a knock-on effect on cashflow, which is among the worst in the country.

Business confidence in the region for the next six months is the highest it has been for a year, but it still remains the lowest in the country.

However, the downward pressure on prices is expected to fade as more companies plan to raise prices.

Richard Iwinski, South-East area director for Lloyds TSB Corporate, said: "Businesses have tightened their belts over the last six months in an attempt to increase operational efficiency. In the medium-term this should reduce production costs, improve profitability and stabilise cashflow pressures.

"Encouragingly, prices look set to start recovering and confidence is building, although businesses will be thoughtful in the light of recent stock market events.

"Plans remain cautious and businesses should be careful not to over commit themselves."

Lloyds TSB said 38 per cent of Sussex firms reported increased turnover and 36 per cent reported increased orders, slightly less than the national average of 41 per cent.

A quarter of firms said they were suffering from cashflow problems compared to a national average of 18 per cent.

Since January, 29 per cent of companies surveyed increased investment compared with 23 per cent who cut spending and 46 per cent holding expenditure static.

Growth in employment remained three per cent below the national average over the last six months.

Sussex Enterprise chief executive Mark Froud said there were a number of causes for poor profits recorded by the county's firms.

He said: "Poor transport links, skills shortages and a lack of suitable premises for growing businesses are all combining to hold back profits in Sussex.

"Companies are working hard and running successful and competitive businesses but the government and local authorities need to do more to remove these barriers to growth."