David Prosser: Higher interest rates are coming sooner than you think

Outlook: In calling for higher rates, the BIS joins organisations including the OECD warning that the cost of borrowing will have to rise sooner than expected

The Bank for International Settlements' annual report makes scary reading – and not just because it warns that Britain, like other countries, would not be able to cope with a second financial crisis. In addition to that hypothetical fear is the actual medicine the BIS demands: an end to both the fiscal and monetary support that governments have been providing to get the world through the financial crisis and recession.

On the former, there is no doubt which side of the G20 argument the BIS takes on whether or not it is too early to withdraw the fiscal stimuli that have seen governments rack up unprecedented budget deficits in an attempt to get their economies going again. David Cameron and George Osborne will find more support for their aggressive deficit reduction plans they could ever need in the BIS report. But the BIS goes further: it also wants an end to the monetary stimulus that low interest rates have been providing. Keep rates as low as the Bank of England's 0.5 per cent base rate for much longer, it warns, and we risk new asset price bubbles and the renewal of risky investment behaviour.

In calling for higher interest rates, the BIS joins organisations including the OECD in warning that the cost of borrowing in Britain, and elsewhere, will have to rise sooner than most people expect. The OECD has already called for rates in this country to go up before the end of the year.

So far, the Bank of England's Monetary Policy Committee has shown little sign of being ready to heed such calls, insisting instead that inflation will come down during the second half of the year, negating the need for a rate rise, at least in terms of its mandate.

Notably, however, one MPC member, Andrew Sentance, has now broken cover, voting for an early base rate rise last month for reasons that sound very similar to the case made by the BIS.

Mr Osborne has argued that one reason it is important to be so aggressive about cutting the deficit is that the price of not doing so will be higher interest rates. What the BIS is saying now, in common with others, is that the days of very cheap borrowing are, in any case, seriously numbered.

The power to deter the cartels

It never rains but it pours for the Office of Fair Trading. Last month, it was humiliated by the collapse of its case against four former and current British Airways executives. A similar embarrassment was inflicted upon it in April after its lengthy inquiry into price fixing in the dairy industry. And now it faces a legal challenge over the fines it issues when it does manage to bring an investigation to a satisfactory conclusion.

Kier, the construction group, yesterday began a High Court challenge to the £18m fine the OFT levied on it last year after accusing it of being part of a building sector cartel. If the appeal is successful, it could prevent the regulator issuing fines of this sort of magnitude in the future.

By any measure, the fine Kier incurred was a hefty one, not least because the OFT has begun calculating penalties with reference to the total turnover of the businesses it is punishing, rather than just the subsidiaries at fault, as was once the practice. Other companies caught up in this investigation, as well as some other high-profile OFT inquiries, are also appealing large penalties.

Still, the regulator's intent is to deter other companies from cartel-style behaviour in the future, an aim we should support. Particularly as the Kier case saw price-fixing at the expense of local authorities on contracts worth hundreds of millions of pounds.

There was a time when one might have expected the naming and shaming of companies to cause such reputational damage that loss of future business would be the inevitable result. But while that really would be a deterrent, an OFT adjudication seems to have been no bar to companies continuing to win contracts from the public or the private sector.

This is not to single Kier out – it is the general principle that is at stake in this case – but in the absence of other meaningful sanctions, the OFT needs to retain its right to impose fines that will make a real dent on the bottom lines of miscreants.

Back Knight to battle for business

So, farewell then, Richard Lambert, the director-general of the Confederation of British Industry, who announces today he will stand down from the business group next year following a five-year term. The lengthy notice period gives the CBI plenty of time to find the ideal replacement.

Here's one early suggestion for an organisation that will need, more than ever before during this unprecedented period of austerity, someone at its head with excellent lobbying skills and real political instinct. What about Angela Knight, the current chief executive of the British Bankers' Association?

Ms Knight certainly has political nous and connections. Financial secretary to the Treasury under John Major, she knows key figures in the Conservative administration well. But what really makes her the outstanding candidate for the top job at the CBI is the success she has had in protecting the banking sector from a post-credit crunch regulatory backlash.

Many of us feel uncomfortable with the concessions the banking industry has won despite its role in the financial crisis and, as we report on page 29, George Osborne does not, so far at least, seem inclined to turn up the heat. Still, one must give grudging credit to Ms Knight for her role in securing smaller taxes, easier capital funding requirements and the status quo on structural issues.

Business as a whole, including the financial services sector, has many battles to fight in the years ahead. And having defended the seemingly indefensible so impressively, imagine what Ms Knight might achieve on behalf of businesses that don't come with the baggage of the banks.