"Companies are focusing on breakeven before contemplating the lure of profits," said the federation.

Rising input costs and the "omnipresence" of overcapacity continued to hit margins with firms reporting worsening figures in the last three months and some expecting a further slide.

"Following a buoyant beginning to the year the market is back to reality," said deputy chief executive Cicely Brown.

"Though unwelcome, firms can look carefully at implementing productivity and efficiency improvements before ramping up again for Christmas," she said.

Story by Jez Abbott