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Manufacturing and contractors recorded the strongest rate of deflation, with costs falling by 4.3 per cent and 4.5 per cent respectively, according to the latest Business Inflation Guide – a quarterly index developed by MORE TH>N BUSINESS in conjunction with Warwick Business School, which measures a basket of 20 of the most important expenditure items for small businesses.

Northern England was the region most affected, primarily due to its greater share of manufacturing firms, with a 3.8 per cent decline.

“After a sustained period of rising inflation, small businesses now have to quickly adjust to this deflationary environment, with some benefiting more than others,” comments Mike Bowman, head of MORE TH>N BUSINESS. “Deflation will come as good news for transport and haulage contractors as they will see fuel costs come down due to a sharp fall in oil prices. However, it’s bad news for businesses that have their assets tied to property or large amounts of stock already purchased, as it will be losing value day by day.”

Stephen Roper, professor of enterprise at the centre for small and medium-sized enterprises at Warwick Business School reckons small businesses will continue to experience deflation over the next quarter as the UK economy weakens. “As a short-term benefit, deflation will provide a much needed pressure valve for small businesses which are currently very cash constrained,’’ he says. “But it also indicates that markets are weakening and demand is low. In the long term, that’s bad for business.’’

View the Business Inflation Guide here.

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