Small Businesses Not Yet Feeling Benefit of Falling Inflation

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Business Inflation Guide reveals rising labour costs are squeezing margins Manufacturing sector suffers the most

The UK's small business community is facing annual cost increases of 9.4 per cent - double the rate of consumer inflation1 - according to the second Business Inflation Guide (BIG) from MORE TH>N BUSINESS, which also exposes rising labour costs as a major contributor to the difficult conditions.

The rate of inflation for small business2 fell 0.5 per cent in the third quarter of 2008 (down from 9.9 per cent), spurred by a reduction in fuel, material, insurance and vehicle costs. But while small business owners can take relief that some costs are falling, MORE TH>N BUSINESS warns that margins will be squeezed by rising labour costs, which represent the largest proportion of expenditure for small businesses.

Annual costs have increased by a notable 11.3 per cent amongst manufacturing firms - significantly more than the service sector (9 per cent) and almost 2 per cent higher than small businesses overall.

The Business Inflation Guide, developed in conjunction with Warwick Business School, is a quarterly index that measures a basket of 20 of the most important expenditure items for small businesses. It offers a unique snapshot of inflation for the UK's small business community.

Head of MORE TH>N BUSINESS Mike Bowman said: "Cost reductions are not filtering down to the small business economy as quickly as they have for consumers. This data provides useful insight as attention turns to helping UK businesses through the recession. Small businesses are the lifeblood of the UK economy so it's worrying to see that they are facing an inflation rate twice that of households.''

Stephen Roper, Professor of Enterprise, at the Centre for Small and Medium Sized Enterprises, Warwick Business School said: "Small businesses may be getting better deals on items such as fuel and insurance at the moment but they still face massive pressure on margins. Their customers are demanding good deals as they themselves come under pressure and other important costs such as labour continue to increase.''

Breaking the data down by region, the Business Inflation Guide found small business inflation over the last year was lowest in Scotland (8 per cent), followed by the Midlands and Wales (9.2 per cent) and Southern regions (9.3 per cent). As per the second quarter of 2008, the figures for the third quarter show that Northern regions have been hit the hardest (10.4 per cent).

To view the Business Inflation Guide visit http://www.morethanbusiness.com/BIG

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