Business costs drop by 0.5%

Business costs have fallen by 0.5% as firms benefit from lower borrowing charges, according to a new report today.

A price index worked out by the London Chamber of Commerce, which includes all costs to industry, including energy, goods and wages, showed a 0.5% fall in the year to May compared with the previous month.

The chamber said businesses across the country were benefiting from borrowing costs that were much lower than a year ago.

Without another credit crunch, borrowing costs should remain low, said the report.

Erik Britton, Director of Fathom Financial Consulting, which helped with the research, said: "Variable cost inflation has picked up this year driven by larger bonus payments.

"Cheaper borrowing costs have allowed firms to keep total cost inflation close to zero, widening business margins.

"The risk is that activity will falter during the second half of the year, as the government takes steps to address the fiscal deficit, hitting company profits."

Dr Helen Hill, director of policy at the London Chamber of Commerce said: "Lower borrowing costs will only have a positive effect on the economy if businesses are confident enough to invest.

"Whilst there are signs of recovery, conditions remain tough and firms continue to hunker down. We expect huge retrenchment from next week's Budget, but we must nonetheless encourage firms to expand. The public sector will contract and the private sector will be the lynchpin of the recovery."