THE cost of running a small business in the North West has entered negative growth for the first time in recent history.

But companies were warned that the fall in costs could also represent a double-edged sword.

The latest Business Inflation Guide (BIG), by Liverpool insurance group More Th>n Business, showed northern firms experienced a significant 3.8% fall in costs during the final quarter of 2008 due to the region’s greater share of manufacturing firms.

In the UK overall the BIG reveals the dramatic drop in costs is largely due to a sharp fall in fuel prices, down 18.3%, and raw material costs, down by 11.95%. Manufacturing and contractors in the UK recorded the strongest rate of deflation with costs falling by 4.3% and 4.5% respectively.

Cost decreases for small firms in the North declined nearly 1% more than the rest of the UK, which has a national average of 2.9%.

But More Th>n Business warns that, in real terms, it is hard to see these findings as good news for small businesses in the North.

While business owners will be happy to see costs reductions, it also indicates that markets are slack and people are not buying.

Head of More Th>n Business, Mike Bowman, said: “Deflation will come as good news for transport and haulage contractors in the North, as they will see fuel costs come down due to a sharp fall in oil prices. However, deflation is bad news for northern businesses that have their assets tied to property or large amounts of stock already purchased, as it will be losing value day by day.”

The BIG, developed in conjunction with Warwick Business School, is a quarterly index that measures a basket of 20 of the most important expenditure items for small businesses.