Smaller firms have admitted to a downturn in business and a rise in operating costs according to a Federation of Small Businesses (FSB) survey.

The organisation is appealing to the Bank of England's Monetary Policy Committee to cut interest rates this week, after 80 per cent of respondents revealed costs had increased in the last year. A total of 46 per cent admitted to a drop in trade as well.

In addition, 40 per cent reported an increase in the cost of finance such as loans and overdrafts. And, 51 per cent had seen an increase in their payment times from invoicing to full payment, which the FSB claimed reflects its concern that larger companies are improving their cash flow on the back of smaller suppliers.

John Wright, FSB national chairman, said: "These startling figures show that the credit crunch is trickling through to the small business sector. In these tough times it is proving increasingly harder for small businesses to rely on their savings and that is why it is so important for banks to be more willing to lend money and for larger firms to settle invoices on time.

“Small business survival is integral to the wellbeing of the British economy. That is why a cut in interest rates by the Bank of England is crucial. The Bank must set aside worries about inflation and look to giving the economy a vital boost.”