Small firms experience price hikes

Small businesses are seeing profit margins shrink in the face of rising costs, a new survey has revealed.

The study of some 500 firms, carried out by Warwick Business School, found that inflationary pressures are pushing up such essential costs as rents, fuel and wage bills.

According to the research, inflation in business costs was running at 3 per cent for the second quarter of 2008 compared with a quarterly average of just over 1 per cent last year.

While the majority of firms are suffering higher outgoings, manufacturing businesses are having to deal with the worst of the increases.

The report said that hikes in the price of raw materials, along with bigger fuel and energy bills, had pumped up the annual rate of inflation for some manufacturers to almost 12 per cent.

The upward trend in business costs could mean annual inflation climbing to as high as 9.9 per cent across the board, the report said.

Stephen Roper, professor of enterprise at Warwick Business School, said: “This index gives us a robust and quantifiable insight into the costs faced by small businesses in an increasingly difficult economic climate.”

Mike Bowman, head of insurer More Than Business, which was involved in the survey, commented: “We suspected that UK small businesses were under great cost pressures but we could find no data to confirm this. Now that we have a true picture of rising costs for small businesses, people will be asking the government what realistic measures can be taken to support them, particularly in the current economic climate.”

Date:26 September 2008