Jump in small business inflation

A sharp jump in the business inflation rate is slowing the recovery for small firms, eating into their cash reserves and forcing them to raise prices it is shown in a detailed analysis of cost movements.

The 2.7pc rise in costs in the first three months represented the biggest quarterly increase since the inflation measurement was introduced five years ago by More Than Business and Warwick Business School using a basket of 20 key expenditure items for small businesses to monitor changes.

The first quarter surge has boosted the annual rate to 6.5pc, more than double the increase in consumer prices, the main inflation indicator.

There had been hopes that business inflationary pressures were easing with the rate of increase held at 0.5pc and 0.9pc in the final two quarterly periods last year but the latest blow is increasing concern that the sector is facing another crunch.

Last month's Budget produced longer rather than short-term help for small businesses and with companies continuing to experience bank finance difficulties and a VAT increase looming there is concern that the casualty rate will grow.

The biggest first quarter increases were concentrated in three areas. Vehicle and maintenance costs and tax was up 7.53pc while fuel costs rose 6.3pc and office equipment and furniture 5.8pc.

Manufacturing has been hardest hit with a quarterly increase of 2.9pc and an annual rate now running at 7.6pc. Regionally northern and southern England sustained the biggest rise of 2.8pc in the quarter compared with 2.4pc in Scotland.

Mike Bowman, head of More Than Business, part of the RSA group, said that with revised forecasts pointing to slower growth the latest cost increases will test small business cash reserves even further.

Small-business man, Jon Haynes, 30, a self-employed London electrician, pointed to another factor influencing the small business climate. He said: "The recession has hit us hard, especially with more people taking the DIY option. I think taxes in general should be reduced to help small businesses with fuel the number one priority."