By Max Clarke

Ahead of the Budget, in which Chancellor George Osborne is expected to reiterate the Government’s desire to see SMEs (small to medium-sized enterprises) driving forward the UK economy, research from MORE TH>N BUSINESS reveals that sharp rises in fuel, energy and materials costs have seen annual small business inflation hit 5%.

RPI (retail price index) and CPI (consumer price index) inflation figures currently stand at 4.0% and 5.1% respectively- far in excess of the Bank of England’s 2% target. The result has been a falling level of consumer confidence, furthering the strain on the nation’s small businesses.

The latest quarterly Business Inflation Guide (BIG) from MORE TH>N BUSINESS, reveals how small businesses are suffering annual inflation rises two and a half times higher than the Bank of England’s 2% target.

Figures for the fourth quarter (Q4) of 2010 show that small business costs rose by an average of 1.7%; reflecting a sharp rise in energy and material costs. Raw materials, alone, rose by nearly 5% in the final quarter of the year, along with smaller increases in other costs. These costs are pressurising margins and making profitability more difficult for small businesses.

This is in stark contrast to the third quarter (Q3) which saw small business inflation actually fall by 0.1% as energy prices were relatively stable and fuel prices fell slightly during a period of declining confidence in the UK recovery.

Mike Bowman, Head of MORE TH>N BUSINESS, said: “The difficult economic climate continues and the costs to small business are a stark reminder of this. Since gaining power last year the Government has been pursuing a pro-enterprise policy and promised support for small business.

“However, these latest inflation figures suggest that George Osborne’s Budget on Wednesday needs to deliver measures for small businesses that will help alleviate some of the pressure from increasing core costs. With energy and material costs forecast to continue to rise there is unlikely to be any respite in the near future. We welcome any pro-enterprise measures that look to help small businesses cope in these very difficult economic conditions.”

Stephen Roper, Professor of Enterprise at the Centre for Small and Medium Sized Enterprises, Warwick Business School, said: “It will be interesting to see what the Budget holds for small businesses and how they can leverage measures to their benefit. Cash flow as ever is a difficulty, especially for businesses that are looking to deliver on expanding orders. The Budget could also look at creating support for small companies to take advantage of rapidly growing export markets, which would be a simple and effective tactic.”

The full report and further information on protecting your small business can be accessed at: www.morethanbusiness.com.