What Can New BoE Governor Mark Carney Do To Drive Small Business Growth?

The new Governor of the Bank of England, Mark Carney, has a tough job ahead of him as he tries to direct the nation towards economic recovery and greater growth. While his predecessor, Mervyn King, stood at the helm during an incredibly tough economic collapse and oversaw the initial efforts to reboot the economy, Carney has taken over at a point where the public are tired of waiting for the much discussed recovery and feel they need immediate action.


Recent figures also suggest that inflation is on the rise and small and medium sized enterprises (SMEs) are still struggling. So what exactly can Carney do to help kick start business turnaround and the growth demanded by small businesses?


Balance Regulation & Growth

The financial crisis was a stark indicator to many experts and policy makers that the banking and lending sector had, to a certain degree, run wild. The lack of regulation and legislation surrounding lending and banking practices had created a situation in which turning the most profit as quickly, and in any manner, possible was far more important than sustainable and responsible practices. However, too much regulation in such industries is thought to strangle growth, making banks less likely to take necessary risks and push the economy forward. Creating an economic situation in which SMEs begin to thrive again will be about finding a balance between regulation and growth, creating a sustainable financial future. Additionally, there is a need for a positive economic outlook to encourage SME’s to seek growth and finance from banks.


Increase Cash Flow to SMEs

Current government policies have largely failed in forcing the banks to lend to SMEs, resulting in lower growth and an inability to find funding for the expansion and establishment of new businesses. Even though cheap loans funded by the central bank have been made to banks, these have largely been held on to and lending hasn’t increased in the way expected. In fact, lending to small businesses was reported to have dropped by £0.5bn in May after a fall of £0.7bn in April. In order to make sure that small businesses begin to show signs of growth they need to see some of the money that has been released with the intention of it being made available through regular banks.


Assess the Impact of Quantitative Easing

The effects of the controversial practice of quantitative easing (QE) also need to be examined in order to establish whether it is really having the impact expected. Many critics of QE argue that it fuels inflation and increases the chance of a reduction in household spending power, while those in favour argue it helped reduce the impact of the financial crisis. Though we can’t be sure who is right at this very moment, increasing household spending power is of vital importance to encouraging small business growth. Consequently, it’s necessary to establish just how QE affects the situation.


Look Beyond Restrained Banks

Up to this point in time, many of the measures implemented by the government in order to improve small business growth have focused on enabling the banks to lend to SMEs. However, this hasn’t worked, particularly because many of the publicly owned banks are now under immense pressure to conserve their cash reserves and reduce their total lending figures. This means that, however much the government keeps on extending the ‘Funding for Lending’ scheme, cash is not finding its way to smaller businesses. Rather than announcing the upgrading of funding for such schemes, the government needs to look to other means of finance. One such alternative, could be support for the new Business Bank, which could be structured to support the growth of SMEs across the country. Whether or not this is a viable option is yet to be seen.


Radical Measures – Negative interest Rates?

There is also the option to implement more radical measures to encourage growth. The most popular idea being negative interest rates at the moment. This policy would act as a punishment to those banks choosing to deposit money at the central bank rather than lend by charging them for the benefit. However, in practical terms this would be incredibly complex to implement and could cause real financial problems if handled incorrectly.


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