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p>I set out to make sense of interest rate predictions in this month's Lead Taker, but it would seem that we are still standing at the cliff edge staring out to sea.
The Bank of England tries to be reassuring, saying that when the bank rate does rise it will do so only gradually, given the persistence of the headwinds facing the economy.
But in a recent interview with the Yorkshire Post, the Bank's Deputy Governor, Markets & Banking, Minouche Shafik, warned that if wage increases are not accompanied by a rise in productivity, inflationary pressures will build up and the Bank may have to act quickly on rates.
Hey, a rise in productivity? Well, productivity remains a puzzle. Output per hour in the UK was 17 per cent below the average for the rest of the major G7 industrialised economies in 2013, the widest productivity gap since 1992, and the only consensus is that the reasons for this are complex.
The CBI's John Cridland commented recently: "The productivity challenge leaves many economists scratching their heads. There is no blanket solution." Apparently, a ‘laser-like’ focus on boosting firms’ competitiveness and creating better ladders to higher-skilled, higher-paid jobs, are the way forward. Could be some way off, but the CBI is maintaining its view that interest rates will rise in the first quarter of 2015.
Whilst staring out to sea on interest rates, my attention was grabbed by Eurochambers, the body that represents chambers of commerce across the EU. It has launched a campaign to create a ‘genuine’ single market for SME finance.
In a new report, it identifies fragmented European rules for lenders and borrowers and a lack of risk culture as the major obstacles to a more favourable investment climate for small and medium-sized enterprises.
Other obstacles identified by entrepreneurs include slowness of decision making for debt or equity financing; barriers – largely regulatory - to acquiring financing from other member states and tax regimes that discourage investment.
The research also shows that bank borrowing is increasingly disregarded as a potential source of financing. With the range of financing options set to become increasingly fragmented, Eurochambers wants to see more guidance to SMEs on options, plus ‘investment-readiness’ support via intermediaries.
While I welcome this, I am wondering whether Eurochambers' ideas are a bit like a fantasy football league. We have already seen De Lage Landen quit the UK market, along with ING, so unless Eurochambers has some serious muscle in the EU, its efforts are likely to be confined to an academic paper.
Immediate blocks that come to mind are protectionism in the financial services industry and fair weather attitudes (social, economic and political). Then there are the Basel 3 capitalisation requirements to deal with, and it should not be forgotten that for the UK, cross border lending requires action on hedging and good forex support.
So I am left clutching binoculars staring out to sea wondering what will be first to wash ashore - an interest rate rise, more banking scandals, poor economic figures, geopolitical upheavals - your guess is as good as mine. Well, at least I am dressed for winter gales and have the distractions of Christmas just around the corner!
I set out to make sense of interest rate predictions in this month's Lead Taker, but it would seem that we are still standing at the cliff edge staring out to sea....
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