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Small businesses less expensive to run

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The cost of running a small business has fallen for the second successive quarter.

According to the Business Inflation Guide, business costs dropped by 1.4 per cent in the first three months of the year.

Business costs have now been declining since the last quarter of 2008 when the rate of deflation stood at 2.9 per cent.

Labour, advertising, raw material and vehicle costs all showed a drop.

Overall, the costs faced by small firms were 0.6 per cent down on the same period a year ago, with recent price falls offsetting rises in costs experienced in the first half of 2008.

However, the report’s authors warned that, although overheads were down, small business profit margins are still being squeezed as demand for products and services continues to be weak.

The Guide, which is put together with the help of Warwick Business School, measures a range of essential expenditure items for small businesses.

Over the last year, the index has registered a series of record levels for both inflation and deflation. In the second quarter of 2008, the Guide measured a cost inflation of 9.9 per cent. Within six months, though, this figure had plunged to -2.9 per cent.

Stephen Roper, Professor of Enterprise at Warwick’s Centre for Small and Medium Sized Enterprises, said: “Looking forward it is genuinely quite hard to predict which way the small business economy will move over the next year. I doubt we will get back to the very sharp inflation we have seen, but I suspect we will move closer to cost stability next quarter.”