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Inflation a BIG problem for SMEs

London, UK (28/06/2011)

LONDON (Management Today) Small businesses are facing their biggest rise in core costs since the recession. So will the Government's Made In Britain drive work out?

According to the latest Business Inflation Guide (BIG), small businesses are being saddled with their highest inflationary burden in over three years. The quarterly report tracked 20 of the most important overheads for small businesses, and revealed a 3.6% rise in costs in the first quarter of 2011 Ė thanks largely to rapid increases in fuel and material prices.

We canít imagine many readers will be surprised to read that costs are going up. But itís disconcerting to learn that these companies are facing the highest quarterly rate of inflation since early 2008 - three times higher than last yearís average quarterly rate of 1.2%. Given that the Government is placing small manufacturers and its flagship Made In Britain campaign at the core of our recovery, this isnít exactly ideal.

Small scale manufacturers are being hit the hardest, with costs up a hefty 4.2%. The over-riding message here: if youíre thinking of doing your bit for the UK economy by starting a small business, try to avoid actually making anything. You may also wish to avoid anything that requires a vehicle: hauliers are under intense pressure too. The rate increase on the price of fuel has more than doubled since last year and hit a record high of almost 10%.

And itís not about to get any easier. With energy prices continuing to rise, margins will be squeezed even further in the second half of the year. ĎSmall businesses are finding themselves trapped between slow growing markets and fast rising costs,í said Stephen Roper, professor of enterprise at Warwick Business Schoolís Centre for Small and Medium Sized Enterprises, who conducted the research. Talk about a rock and a hard place. Roperís advice is to aim at the export market. Which could be another catch-22: try passing on the rising costs to your export customers and see how that affects business.

Now we admit thatís not a particularly cheery prognosis. Anyone seeking a patriotic boost may wish to tune in to the BBC's Made In Britain series tonight. Some may feel that presenter Evan Davis glosses over a few harsh economic realities, but at least his picture's a bit rosier...

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