Will the use of an isolation transformer improve the safety of my power supply?
Will the use of an isolation transformer just after the AC supply
  isolate the rest of the circuit from the supply. Will this make the
  design safer


If you have a GFCI (used in the US) or RCD (used in the UK) upstream of your isolation transformer then you have lost the protection that these devices can offer. These devices work by sensing an imbalance in live and neutral wires with the assumption being that any current flowing in live that isn't flowing in neutral must be flowing to earth (possibly through some bodily contact).

For instance, if you touched "live" it would trip said device and protect you. About 30 mA is the current that might flow into you before the device trips. Still enough to give a big jolt but after a few tens of milli seconds the power would trip. If you touched neutral you probably wouldn't notice any sensation at all and the device wouldn't trip. If you touched both live and neutral together, there would be a big earth current imbalance (flowing mainly from live as before) and you would be safe after a few tens of milli seconds.

The output of the isolation transformer is different. If you touched either wire individually you might feel a slight tingle due to leakage capacitance to earth. Nothing there to worry about except that if you touched both isolated live and isolated neutral you would fry. The GFCI (or RCD) upstream of the transformer has no knowledge that you are frying.

Transformers are less efficient to answer your other question.