Costs for small businesses increased by an average of 1.7 per cent in the fourth quarter of 2010, reflecting soaring energy and material prices, according to the quarterly Business Inflation Guide from financial services provider More Th>n Business.

In the final quarter of last year, raw material costs were up by nearly 5 per cent, putting increasing pressure on margins.

Small business inflation had declined by 0.1 per cent in the third quarter of 2010 as energy prices stabilised and the cost of fuel came down.

Mike Bowman, head of More Th>n Business, warns, ‘With energy and material costs forecast to continue to rise there is unlikely to be any respite in the near future.’

He is calling on Chancellor George Osborne to alleviate some of the cost pressures on small businesses when he delivers the Budget this week.