Business costs fall as credit crunch eases

BUSINESS costs in the UK fell by 0.9 per cent over the past year, largely because of an easing in the credit crunch, according to research out today.

Firms have benefited from a sharp reduction in borrowing costs compared with a year ago, especially larger companies who can access capital markets directly, said the London Chamber of Commerce (LCC).

Its Business Price Index (BPI), designed to do the same job for industry as the Consumer Prices Index does for consumers, is compiled from official data covering raw materials, energy and labour costs.

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The LCC said business costs had been rising less rapidly than consumer prices for a number of months as firms slowly rebuilt their profit margins.

Erik Britton, director of Fathom Financial Consulting, which conducted the research, said: "The negative reading on the BPI is confirmation that underlying inflationary pressures are weak.

"With so much spare capacity in the UK economy, CPI inflation should start to fall significantly next year as January's increase in the rate of VAT drops out of the 12-month comparison."

Dr Helen Hill, director of policy at the London Chamber of Commerce and Industry, said: "Falling business costs should provide firms with a welcome respite as we emerge from the longest recession in living memory.

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"Ultimately, it will be also good news for the consumer as upward pressure on the prices they pay for goods and services starts to fade.

"Yet, despite a rise in business confidence, half of London firms are still fearful of a double dip so we are far from out of the woods."

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