The first comprises the indigenous manufacturing sector as well as parts of the agricultural sector. These sectors remain quite dependent on the UK market and are exposed to euro/sterling exchange rate developments. Particularly severe trading conditions could arise if an acceleration of wages in this sector was compounded by a sudden, significant rise in the euro against sterling.
This situation would appear to constitute a “market failure”. The private sector parties, borrowers and lenders, are incapable of making the credit mechanism work efficiently because each responds to incentives and disincentives that clash with the general interest. Small businesses want to stay as “opaque” as possible; indeed, they are accustomed to understating their actual earnings for tax reasons.