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In a letter to the government, Mervyn King, head of the Bank of England’s Monetary Policy Committee (MPC), warns that the rate of inflation could rise to 5 per cent in the coming months as it remains above target this year, prior to falling back in 2012.

Earlier this month, the MPC maintained interest rates at 0.5 per cent, despite coming under pressure to respond to inflation by raising the rate of interest.Raising interest rates at a time when fiscal policy is being tightened will heighten pressures facing businesses and individuals,’ says Kern.

By contrast, manufacturing smaller firms operating in niche markets may have been able to absorb the crisis better than larger, more globally orientated producers such as car makers. Still small businesses in the service sector were hit hardest during the recession, as they suffered a peak-to-trough drop in turnover of 38 per cent. ONS statistician Tullio Buccellato suggests that smaller companies providing specialist services are particularly vulnerable to a fall in discretionary demand. 

It therefore explains that for small entrepreneurs especially in service sectors, it is now very crucial to have an exhaustive agenda on planning for small business funding .The options other than government grants and bank institutions has to be much taken in consideration, to avoid the repercussions of inflation.