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New research claims that small businesses are experiencing reduced costs through deflation.

The latest Business Inflation Guide from More Than Business reveals that the cost of running a small firm in Britain is now cheaper than it has been for over a generation.

According to the research, costs for enterprises fell by 2.9 per cent across the UK in the last quarter of 2008, with the northern regions seeing the greatest decrease of 3.8 per cent.

The inflation guide, which measures the cost of 20 items commonly purchased by small businesses, shows that there has been an 18.3 per cent decline in fuel prices, an 11.5 per cent cut in raw materials and a 2.8 per cent reduction in insurance.

Stephen Roper, professor of enterprise with the Centre for Small and Medium-Sized Enterprises at Warwick Business School, which worked on the index, explains: 'As a short-term benefit, deflation will provide a much needed pressure valve for small businesses which are currently very cash constrained.'

However, he also points out that deflation shows demand is low and markets are weakened, which has negative consequences in the long term.

Recent research from Lloyds TSB claimed that cashflow remains a major problem for UK businesses, driven by late payment of invoices by their customers.

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