The cost of running a small business declined 1.4% over the first quarter of the year due to rising deflation, according to the Business Inflation Guide.

This is the second successive quarter of sustained deflation for the small business community, with the last quarter of 2008 seeing costs drop 2.9%.

Declining labour, advertising, vehicle and raw material costs have all contributed to the continuing decline, however profit margins still remain under huge stress due to low demand for products and services.

"The fact that we're experiencing such sustained deflationary conditions demonstrates just how deep the recession has become in the UK," said Mike Bowman, Head of MORE TH>N BUSINESS.

"While it is cheaper to run a small business, it is clear that demand for goods and services is dropping off considerably and that is why prices are spiralling downwards.''