BUSINESSES must be prepared to adapt and embrace change to achieve greater prosperity, the Governor of the Bank of England said in a speech in Kent.

Mervyn King told about 300 guests at a black-tie dinner in Ashford that the road to change was often hard going. "But it leads ultimately to a more prosperous destination," he stressed.

Lessons should be drawn from the Kentish hop industry, said Mr King.

In 1908, 30,000 hop workers had crowded into Trafalgar Square to protest against foreign competition and demand a tariff on imported hops.

Mr King said that one banner proclaimed: "And shall hops picked by Chinamen make England’s hop trade die, here’s 50,000 Kentish men will know the reason why."

The Governor said: "Colourful and moving though the occasion was, the decline of the hop industry was inexorable and invevitable."

"A willingness to adapt and embrace, rather than resist, change is the key to greater prosperity."

He spoke about the emergence of the Chinese, Indian and other economies. Cheap overseas production had forced changes in what the UK produced.

"In Kent, the expanding sectors include financial services, transport (with 18 million tons of freight passing though the Channel Tunnel each year), the exploitation and life sciences, and higher education (with five universities in the county."

Mr King spoke of the rise in oil and other commodity prices, largely fuelled by increased by the rapid growth of China and India.

Net imports of oil to China rose seven times between 1995 and 2004. "Similar rises are apparent in the market for gas," the governor said.

The fall in long-term interest rates posed a challenge to monetary policy, Mr King warned.

The chairman of the Bank’s rate-setting Monetary Policy Committee said they had fallen to remarkably low levels.

In the UK, the annual interest rate on 20-year index-linked government bonds, after allowing for anticipated future inflatoin, was around one per cent.

Some countries, especially in Asia and oil-producing countries, had saved, investing those saving in rich countries.

But this "propensity to save" could start to unwind, pushing up demand and interest rates.

"The resulting rise in real interest rates and implied fall in asset prices would encourage the industrialised world to save more," Mr King said.

Imbalances in the world economy would start to unwind. Investment remained weak in the UK but savings might increase because of the need to save more for retirement.

Mr King said that the remarkable degree of stability that the UK economy had enjoyed over the last decade was less evident in the past 12 months. "Growth slowed and inflation rose above target."

But the wheels were not coming off the economy, he said.

"Our central view remains one of steady growth and low inflation. But there are risks to that central view emanating from the rest of the world and we shall watch development in world capital markets carefully."

He ended his speech by referring to the 300th anniversary of the birth of Benjamin Franklin, "arguably the greatest of the American founding fathers".

He often visited Kent, Mr King said, and the American Brewing Association had produced a new recipe for Franklin’s favourite beer to mark the occasion.

It recommends the use of Kent Goldings hops. Mr King said this showed that despite the fears of protestors in 1908, the hop industry had not disappeared altogether.

The event, at the Ashford International Hotel, was organised by Kent Business, the Kent Messenger Group's monthly newspaper, and jointly hosted with the Bank of England.

Geraldine Allinson, chairman of the Kent Messenger Group, welcomed Mr King. She said the county faced many challenges over the next few years, such as housing growth and rising volumes of traffic.

"However, these challenges present great opportunities," she said. "People are already working hard on developing Ashford, Ebbsfleet, the great connections offered by the Channel Tunnel Rail Link, the possible scientific and applied science complex at Wye Park, and developments at Manston, Biggin Hill and Lydd airports."

She added: "We are extremely lucky to live and work in this county."

* kmfm questioned Mr King about what could happen to house prices in the county in 2006. But he wasn't giving too much away...