. over 60 % judged distribution to shareholders and purchasing financial assets as the most important use of internally generated funds. in fact, only a quarter of all firms prioritised using their internally generated funds for investment purposes ( chart 3 ). three - quarters of firms put investment behind distribution to shareholders and investment in financial assets when assessing the most important use of internally generated funds. all speeches are available online at www. bankofengland. co. uk / speeches chart 3 : most important uses of internal funds % of businesses firms with too little investment firms with appropriate levels of investment all firms funding investment purchasing financial assets ( including m & a ) distributing to shareholders / owners keeping as cash balances notes : question 17 : ‘ when you think about using internal funds what do you generally prioritise? ’. options provided to firms include : distribution to shareholders includes dividends and share buybacks. purchasing financial assets includes m & a. source : bank of england finance and investment decisions survey. and, on a related question, 80 % of all the publicly owned firms agreed that financial market pressure for short - term returns to shareholders had been an obstacle to investment. somewhat surprisingly, a significant proportion of the privately owned firms in the survey also saw financial market pressures as an obstacle to investment. this implies perhaps that financial market pressures for returns have a more general effect on the way investment returns are viewed by firms. the underinvesting firms also faced non - financial obstacles. chief amongst these were greater risk aversion and greater uncertainty about the economic environment, which may include uncertainty about the returns to investment. i want to deal with these under my second set of observations around rates of return. at this stage, however, it is worth noting that for the group that underinvested, non - financial obstacles seem to have played as big a role as financial ones in their investment decisions. and, when looking at constraints on finance, using profits to finance investment appeared as important as constraints on borrowing. all speeches are available online at www. bankofengland. co. uk / speeches as i noted earlier, the question of constraints on finance for investment in the uk has deep roots. the survey suggests that while there has been underinvestment and while financial constraints appear to have played a role, other financial and non - financial constraints like crowding out, uncertainty and risk aversion have probably been equally important. unfortunately there seems to be no silver bullet. the survey suggests that any policy initiative

implication, hurdle rates has been so stable around 12 %, despite the historically low level of bank rate since 2008. bank rate has been at or below ½ % for the past eight years and some of this has fed through to a lower cost of corporate borrowing. one might have expected the very low risk - free rate to have brought down the rate of return demanded by firms on investment. if, as seems likely, hurdle rates, like the ons rate of return, were around 12 % before the crisis, firms now seem to be looking for a 12 % return over the risk free rate compared to around 7 % prior to 2007. some of this can probably be explained by the fact that the cost of financing investment has come down but not by as much as the risk - free rate. the weighted average cost of capital has come down since the crisis. but the reduction has been smaller than the reduction in the risk - free rate. this is because providers of debt and equity finance have increased the premium they charge for risk ( chart 4 ). chart 4 : rates of return on capital and cost of capital compared to survey measures net rate of return for pnfcs ( ons ) ( a ) net rate of return for pnfcs - 2000 - 2016 average cost of loans for private non - financial corporations ( b ) weighted average cost of capital ( c ) bank rate average rate of return ( survey ) ( d ) average hurdle rate ( survey ) ( e ) average cost of bank loans ( survey ) ( f ) per cent 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 source : bank of england, ons profitability of uk companies and bank of england finance and investment decisions survey. ( a ) uk non - financial corporations'net operating surplus / net capital stock ( per annum ). ( b ) weighted average interest rate of sterling loans made to private non - financial corporations by uk resident monetary financial institutions ( excl. the central bank ). all speeches are available online at www. bankofengland. co. uk / speeches ( c ) ( d ) ( e ) this is partly based on estimates of the equity risk premium as described in inkinen, stringa, and voutsinou ( 2010 ). there is considerable uncertainty surrounding these estimates. question 12 :'if you set an investment hurdle rate, what is it? '. question 5 :'on average, what is the total rate of return realised on