Small firms are experiencing a big squeeze on their profit margins as inflation increases, one industry body has warned.
Commenting on the Consumer Price Index (CPI) figures for March which show annual inflation is at 2.5 per cent, David Kern Economic Adviser to the British Chambers of Commerce (BBC), warned firms to expect tough time ahead.
He said: "Many businesses are clearly experiencing a serious squeeze on their margins and the position will get worse once a decline in house prices effects consumer spending."
Mr Kern also warned that headline inflation does not paint the whole picture and many firms have found that the cost of raw materials has increased by a record amount.
For these reasons, Mr Kern urged the Bank of England's monetary policy committee to cut interest rates to 4.75 per cent in May.
Last week, the Federation of Small Businesses urged local authorities to do more to help small firms operating in their area.
