The cost of running small contracting businesses has fallen, but so has demand according to latest figures.

The Business Inflation Guide (BIG) from More Than Business states that small business contractors across the UK are experiencing unprecedented levels of deflation resulting in rapidly declining operating costs.

The BIG claims that small contracting business has fallen to -1.4% deflation over the first quarter of 2009.

While drops in fuel and raw material costs have played a part, there is also a worrying low demand. Mike Bowman, head of More Than Business, said “The fact that we’re experiencing such deflationary conditions demonstrates just how deep the recession has become in the UK. While it is now cheaper to run a small contracting business, it is clear that demand is dropping off considerably and that is why prices are spiraling downwards."

The sharp decline marks the second consecutive quarter of sustained deflation. The last quarter of 2008 saw costs plunge to -4.5%. In comparison, the UK’s Consumer Price Index (CPI) currently sits at 2.3 per cent inflation, and the Retail Prices Index (RPI) currently sits at -1.2 per cent deflation.

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.