Small firms see silver lining in deflation cloud

Published on Sunday 22 March 2009 20:05

MORE than 60 per cent of small businesses in Scotland expect inflation to "flatten-out" or "decrease" over the course of the year, a survey today said.

A period of deflation could bring lower running costs for businesses, with 30 per cent of small and medium-sized enterprises (SMEs) branding falling prices as a "positive stimulus" for their companies.

But business groups warned that deflation could be a "double-edged sword" for SMEs.

More than half of small business owners think that the costs of running a business will remain flat or possibly decrease over the course of the year, when compared with 2008, according to the survey by Bank of Scotland.

With operational costs remaining relatively flat, 53 per cent of small business owners expect to freeze prices for their customers during 2009, though one in seven expect to buck the trend and hike prices by more than 5 per cent.

Donald Kerr, commercial banking director at the Bank of Scotland, said: "Contrary to the trend in recent years, small business owners are now anticipating level or even possibly lower running costs over the coming year.

"However, against a background of difficult trading conditions, the majority of companies are now being pushed by their customers to reflect these lower costs in lower pricing."

Colin Borland, from the Federation of Small Businesses, said: "Running costs are coming down from historic highs. Deflation is a double-edged sword though because if prices are falling, then people hold off buying because they think they may get a better price next month.

"Also, if you've bought stock at a higher price and have to sell it at a lesser price, then it's going to effect your margins."

The survey came a fortnight after a report from insurance firm More Than and Warwick Business School, which suggested SMEs in Scotland were not benefiting from deflation to the same extend as firms south of the Border.