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Rising fuel costs are punishing smaller businesses by stifling growth and employment, according to the Federation of Small Businesses.

The FSB polled 9000 small business owners and found that 80 per cent felt that if high fuel prices continue, it is likely to curtail their business expansion and make it difficult to grow their workforce over the next 12 months.

Considering that small businesses account for half of the UK GDP, the recent economic forecast from the Confederation of British Insurers seems to bear this out.

Richard Lambert, director general of the CBI, said: "Over the past year, the CBI has consistently had to revise down its forecasts for economic growth. The main reason is that the oil price, measured in depreciated sterling, has continued to rise strongly, roughly doubling since the spring of 2007. This has squeezed household incomes and companies' profit margins, and has also made it much harder for the Bank of England to cut interest rates in the face of the economic slowdown."

However, he added that this is "not a forecast for recession."

John Wright, national chairman for the FSB, said: "The most frustrating thing is that the government can do something about it. Its estimate of the cost of North Sea oil in the last Budget was well below the actual cost, which means that tax revenues have been well above expectations. Why can't they use this extra money to reduce fuel duty and ease the pain for the millions of small businesses that keep the UK economy afloat?"