The Governor of the Bank of England, Mr. Eddie George, last night predicted less violent fluctuations in interest rates, and lower rates of return in the second half of the nineties.

In a speech discussing global competition, Mr. George, who is on the Island to participate in the celebration of the Bermuda Monetary Authority's 25th anniversary, said there is a "chance'' the industrial world will see steady, but sustained growth during the last half of this decade.

In Mr. George's view, the protracted recession is, in some part, caused by global competition.

"Business itself has recognised that the necessary response is higher productivity, and even greater cost control.

"There is a proper insistence on the need for free and fair markets,'' he said.

Another key issue in his speech made at the Chartered Institute of Bankers annual dinner last night related to regulatory standards -- as much a concern for Bermuda as the City of London.

Bermuda must be aware that firms will seek out well-regulated financial centres in which to locate, said Mr. George.

"Globalisation of financial services means that, increasingly, financial regulators need to rely upon the supervision exercised by their counterparts abroad, and individual firms will find that international access is easier if their home regulator is acknowledged as operating consolidated supervision to internationally accepted standards,'' said Mr. George.

"It may be denied if it is not,'' he added. "Similarly firms will locate their activities in centres that are well regulated because they are necessarily concerned with their own reputation internationally.'' One worrying offshoot of the liberalised financial system, identified by Mr.

George, is the increased possibility of the laundering of drug money, or the proceeds of other organised crime.

However, in a positive light, the advance of information technology and deregulation has had "a spectacular impact'' on the financial services industry, which is set to continue unabated, he said.

The intention to bring financial services within the GATT is one sign that global competition in financial services will continue to intensify.

The challenges facing financial intermediaries have increased, said Mr.

George, citing exposure to risks and pressure on profitability.

"They assume new dimensions of complexity in an environment of global finance and global competition.'' Financial regulators have to ensure that the new pressures do not drive intermediaries to take on excessive risks, he said.

"They have to ensure, too, that the new financial freedoms are not abused, and they have to ensure that the competition is reasonably `fair', within and across financial sectors, and also internationally.

"And they have to do all this with a sufficiently light hand to avoid stifling the competition they are seeking to promote,'' he said.

Financial services users have been provided with a wider range of financial instruments and lower costs.

"But the complexity of some of the products can leave the users more widely open to abuse by intermediaries in an intensely competitive environment,'' said Mr. George.

UNVEILING -- Mr. E.A. George, Governor of the Bank of England (left), opens a note and coin exhibit at the City Hall, yesterday, and unveils a plaque commemmorating the occasion. Pictured with the Mayor of Hamilton, the Rt. Wor.

Cecil Dismont, and Bermuda Monetary Authority chairman, Mansfield Brock (right), Mr. George is the Authority's guest of honour during the celebration of its 25th Anniversary.