Every business should consider having a Christmas party for its workers to boost team spirit in the current economic downturn, according to a loyalty programme company.

An inexpensive party at the local pub with a few drinks and buffet food is better than having nothing and will keep morale up, Nectar Business says.

Research by the Business Inflation Guide shows small businesses are facing annual cost increases of 9.9 per cent, which is double the rate of inflation.

Karen Hanton, on behalf of Nectar Business, said when companies want to cut costs in difficult times the Christmas party is usually one of the first things to go.

"They cut all the enjoyable things out of the lives of the employees. That is the immediate reaction and it is totally the wrong thing to do," she added.

Research also showed in the second quarter of 2008, small businesses faced cost increases of 3.4 per cent with micro businesses being hit the hardest.