February 2013

Negative interest rates proposed to boost bank lending

In a meeting of the MP Treasury Committee this week, Bank of England Deputy Governor Paul Tucker put forward the idea of setting a negative interest rate in the UK, as businesses continue to struggle to access bank funding. Such a plan would involve banks having to pay the central bank a fee for keeping cash in its coffers, which, in an ideal world, would incentivise banks to increase their lending activity to SMEs and thus contribute to economic growth. However, the obvious drawback is the risk that will consequently be shouldered by individual savers, such as those with pension funds. In addition, this measure would send contradictory signals to banks already under pressure from the government to maintain a capital buffer that can cushion savers against losses, and would potentially perversely encourage the same kind of high-risk behaviour that led to the credit crisis.

The Bank of England has been considering a variety of options to tackle the dry-up of lending in the UK, of which this idea is only one. Other possibilities include extending the Funding for Lending scheme further (offering banks low interest loans that it can pass on to borrowers) or continuing with the quantitative easing strategy (injecting money into the economy to stimulate growth).

Clegg makes RGF call as deadline looms

Nick Clegg has encouraged Midland businesses to apply for a share of the latest round of the Regional Growth Fund (RGF) before the deadline.

This fourth round of funding has made £350m available to firms. Applications required a minimum bid of £1m and the cutoff date will be noon on 20 March 2013. Although the Deputy Prime Minister has urged midland business to approach the fund, cash is open to companies and projects across England.

The fund is intended to drive economic growth and for each pound the government commits, the private sector is putting in six pounds.

Exports herald bright future for UK industry

Businesses confidence about future revenues and profitability are at a three year high, the DHL / BCC Trade Confidence Index (TCI) suggests.

Based on the responses of 1500 firms nationwide, the report, which began in 2010, revealed that the sales and export orders for manufacturers and service firms increased in the final quarter of 2012. Businesses saw a 4.2% rise on the previous quarter and 14.2% rise on the previous year.

The latest figures do to some degree provide British firms with an optimistic outlook but  it is too early for complacency given that the Eurozone, which accounts for almost half of the UK’s trade, is still in the midst of an economic crisis. However, with the British Pound recently falling against the American Dollar and Euro, exporters might see their overseas sales continue to rise as British goods and services become cheaper abroad.

New EU patent laws will slash costs for SMEs

Patent laws will be reformed to streamline the application process for businesses in the EU, in an agreement to be signed tomorrow by Vince Cable. Currently UK businesses must go through the lengthy process of registering their idea separately in each of the EU member states at a cost of approximately £20,000. Under the new rules applicants will only need to register once, at a much-reduced cost of £600, to receive EU-wide patent recognition. It also means that patent disputes can be settled in one court, rather than in separate cases in each country.

It is hoped that by reducing the bureaucratic and financial barriers surrounding patents, companies will be encouraged to invest in economy-boosting research and innovation projects, with particular benefits for SMEs and pharmaceutical companies.

Wales Economic Growth Fund to reopen for applications

It was recently announced by Business Minister Edwina Hart that the second phase of the Wales Economic Growth Fund will open next month.

£30m has been allocated to the fund with the intention of supporting Welsh businesses by creating jobs, growth and wealth. The objective of this latest funding is to protect 3000 jobs and to assist approximately 200 Welsh Businesses. Since the first phase was over-subscribed with firms applying for more than £100m – 119 businesses enjoyed £31m funding – it is almost certain this second round will please Welsh firms.

The first funding round will cater to small businesses that need between £50k and £100k, and businesses are encouraged to lodge expressions of interest between March 1 and April 5. Another round will open in the autumn of 2013 for firms that require over £100k.

Government funding to boost job creation in coastal towns

The £16m Coastal Communities Fund has been distributed to a range of organisations (including charities, local authorities, development agencies and private sector companies) in coastal communities across the UK. The initiative aims to promote sustainable economic growth and increase employment in these areas.

Communities Secretary, Eric Pickles, wishes to create a more diversified economy in seaside areas that have traditionally struggled with seasonal economic lulls due to heavy reliance on the tourism industry, while also losing tourists to foreign destinations with the rise of budget airlines.

Crowdcube gets official approval

Crowdfunding website Crowdcube will now be regulated by the Financial Services Authority (FSA), after it received approval this week. Crowdfunding is a relatively new phenomenon in the financial world – it involves members of the public (as opposed to seasoned investors and VCs) buying a direct equity stake in a growing business through the vehicle of a website. 

There have been concerns raised about the protection of investors, who may not be aware of the risks involved or be as cushioned from losses as larger investors are. However, in line with FSA regulation, potential investors on Crowdcube will now be required to undertake a questionnaire confirming their understanding, will be protected by the Financial Services Compensation Scheme and will be able to complain to the Financial Ombudsman Service.

UK and eurozone service sectors see improvement, data shows

According to a study carried out by Markit and the Chartered Institute of Purchasing & Supply (CIPS), growth returned to the UK service sector in January.

The Market/CIPS purchasing managers’ index for the UK increased to 51.5 in January, up from 48.9 in December - a figure over 50 is suggestive of growth. The survey concluded that stronger demand stimulated activity and that growth came as a result of an increase in the volume of new businesses together with an expansion in staffing. 

The service sector accounts for around three quarters of the UK economy and the positive data recorded in the survey might  indicate signs of economic recovery. However, since uncertainty about the economy persists, a cautious attitude remains prudent. 

Seedcamp reveals an ambitious programme for 2013

Seedcamp, the European-focused seed investment fund and accelerator, will be expanding to more locations across the continent and will be offering a wider range of options for participation. In particular, London will be the focus of increased attention as a result of its flourishing startup ecosystem, with two Seedcamp events lined up there this year.

The new range of offers looks like this: €50k for an 8-11% stake, €25k for a 5% stake for companies that already have some funding, and a mentorship and training package for a 3% stake for companies that are already well funded.

Seedcamp mentees are offered, among other things, office space in the Google Campus London, advice from a network of 2000 experts, a tour of the US startup and investor community.