By Max Clarke

While inflation has largely begun to level off in the UK, and last month actually saw a marginal drop in the retail prices index of inflation, many of small businesses’ key overheads continue to rise sharply.

By taking the top 20 expenses of UK small enterprises, MORE TH>N BUSINESS have compiled their own Business Inflation Guide, published quarterly. A sharp rise in costs has seen the latest quarter’s figure rise at a rate of 3.6 per cent in the first quarter of 2011, driven largely by rapid increases in fuel prices and material costs. This is the highest quarterly rate of inflation since early 2008 and three times higher than last year’s average quarterly rate of 1.2 per cent.

Small scale manufacturers, hoped by many to drive the ‘Made in Britain’ recovery, are being hit particularly hard with cost rises of 4.2 per cent, significantly higher than other industries.

“Given the turbulent economic conditions and ongoing impact of the recession,” said Mike Bowman, Head of MORE TH>N BUSINESS, “it is no surprise that small businesses are suffering from the highest rate of inflation in over three years.”

“Economic volatility has made it very difficult to plan and invest, placing tremendous pressure on cash flows and difficulties in managing stock and staffing levels. There are a lot of small businesses, which have never experienced anything like this before.''

Hauliers, florists and other vehicle-based industries are under particular pressure from raising outlays. The rate increase on the price of fuel has more than doubled since last year and hit a record high of almost 10% (9.96%) per cent. With energy prices continuing to rise, margins will be squeezed even further in the second half of the year.

Stephen Roper, Professor of Enterprise at Warwick Business School’s Centre for Small and Medium Sized Enterprises, who conducted the research comments as follows on the findings: “With fuel and materials costs continuing to rise, small businesses are finding themselves trapped between slow growing markets and fast rising costs. It’s difficult to see inflationary pressures easing in 2011 as energy and input costs continue to climb. Where possible, small companies should look to take advantage of rapidly growing export markets in order to grow and maintain cash flow.”

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