Low inflation 'good news for small business'

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Low inflation 'good news for small business'

The continuing very low level of inflation is good news for small firms around the UK, the Federation of Small Businesses (FSB) has said.

News this week that the Consumer Prices Index (CPI) figure for prices showed an increase from zero to 0.1 per cent revealed that the recent trend for inflation to hover around nil is continuing. Coupled with rising wages, it means consumers are getting better off and thus purchasing power is rising among consumers and businesses.

National chairman of the FSB John Allan remarked: "The CPI has hovered around this level since the start of the year, providing businesses with a steady period of low inflation. Many small firms are benefitting from the continued fall in oil prices and increased consumer spending.

"Household disposable income has been boosted by several factors including low food prices, rising real wages and the strong pound which is making imports cheaper."

He noted that further good news has come in the form of FSB research showing that small firms are confident at the moment, with this leading to more investment in staff, machinery and IT systems.

With inflation remaining so low, there is no particular pressure on the Bank of England to raise interest rates, despite concerns that it should not allow the 0.5 per cent rate in place since March 2009 to be considered the norm in an economy that is steadily recovering.

Mr Allan noted that the Bank does not anticipate a rate rise before late 2015, and he said when the rates do start to rise, the Monetary Policy Committee (MPC) should move "gradually" to make it easier for firms to adjust.

The MPC meeting earlier this month saw a rare break from the recent unanimity over the base rate, with one member, Ian McCafferty, arguing for a 0.25 per cent increase.

His view was that the likely impact of wage growth was set to be higher than expected and the level of spare capacity in the economy smaller.