Growing businesses are expecting to see a period of deflation this year, according to research by the Bank of Scotland.

Growing businesses are expecting to see a period of deflation this year, according to research by the Bank of Scotland.

Over a quarter believe that deflation will provide a positive stimulus for their businesses due to lower running costs.

Some two-thirds of the small business owners surveyed anticipate that inflation will either flatten out (31 per cent) or decrease (35 per cent) over the course of 2009.

In line with the fall in property prices, 68 per cent expect commercial property prices to continue falling. Salary overheads are also expected to remain low as 67 per cent say they intend to freeze wages and 13 per cent anticipate a salary decrease.

Of the 1,000 SMEs surveyed, nearly eight in ten believe that they are operating in a tough market, with customers looking to drive down prices and get the same for less.  

Donald Kerr, commercial banking director at the Bank of Scotland, says: ‘Contrary to the trend in recent years, small business owners are now anticipating level or even possibly lower running costs over the coming year.

‘However, against a background of difficult trading conditions, the majority of companies are now being pushed by their customers to reflect these lower costs in lower pricing.’

In January living costs gauged by the Retail Prices Index (RPI) showed the lowest annual rate of inflation in nearly 50 years, with year-on-year inflation slowing to just 0.1 per cent.