16th May 2013
The inflation rate for small and medium sized businesses has falling to 1.1 per cent in the first quarter of 2013 at least partly because of lower wage costs according UK bank Aldermore which has just launched the Aldermore SME inflation index.
The index shows that in the first quarter of 2013 annual cost inflation for UK SMEs stood at 1.1%. This is down from 1.3% in the previous quarter, and 2.0% in the first quarter of 2012. Indeed SME inflation has fallen in every quarter since mid 2011.
The bank says different sectors of the SME economy are facing differing levels of inflationary cost pressures, with inflation highest in the retail sector and lowest in the business services sector.
The overall fall this quarter was primarily a result of slowing wage growth across the economy and even falling total pay in the business services & finance and construction sectors.
Mark Stephens, Deputy CEO of Aldermore says: “The Aldermore SME Inflation Index is an exciting new quarterly economic survey, focusing specifically on SMEs. These companies are the lifeblood of the UK economy and a vital component for a sustained economic recovery. We therefore developed this Index to give SMEs around the country a much more tailored and detailed inflation report than they have had access to before.
“The first edition of The Aldermore SME Inflation Index shows SMEs are not facing as much of an inflationary pressure as the headline Bank of England figures suggests; however in spite of this, the business environment remains challenging for them. SMEs continue to need the support of banks to help them expand and develop their businesses.”
Of the headline annual SME cost inflation rate in the first quarter of 2013, the biggest contribution was 0.3 percentage points from physical inputs. The costs of manufactured products such as foodstuffs and machinery & equipment (including computers) continued to rise year on year. However, falling wage inflation helped to bring down the overall rate. Aldermore says that in this quarter, employment costs contributed just 0.1 percentage points to SME inflation, down from 0.4 points the previous month.
It adds that declining commercial rents put downward pressure on the overall SME inflation rate. This is likely to be partly driven by elevated office and retail vacancy rates at present.
Aldermore says that cost inflation was highest in the retail sector in the first quarter of 2013, reflecting rising input costs for food, tobacco, textiles and computer & electrical equipment. By contrast, cost inflation was lowest for business services firms in the first quarter of 2013 – currently standing at 0%. It says this reflects the fact that employment costs account for approximately 54% of total business services costs and overall pay restraint helped curb cost inflation in this sector.