How will recent Bank of England interest rate rise affect farmers?
The Bank of England has raised interest rates from 0.25% to 0.50% which has pushed up borrowing and added financial pressure on farming businesses.
This is the first interest rate rise since 2007 and could be the start of a gradual increase in rates as the Government bids to control rising inflation. Farming relies heavily on borrowing to fund investments and improve business efficiency and any rate rise is a big concern for profitability going forward.
In the last five years, there has been a dramatic increase in farming borrowing due to the historic low rates and the need for farmers to continue to invest to improve business efficiency with lower farm gate prices.
Since Brexit, the pound has hit a 30 year low which has boosted exports, increasing prices at the farm gate and raised Basic Payment Scheme. This increase in interest rates is expected to push up the value of sterling which will have a further bigger impact on farming because a stronger pound will mean our exports are less attractive. Whilst this small increase has not had a dramatic effect yet, any further rate increases are of big concern with input costs already having increased by over 7% since the Brexit referendum in June 2016.
With the increase of uncertainty at the moment with Brexit, the rate rise sparks a time for businesses to review their funding and the business as a whole.
Speak to your Bank Manager now and ask what fixed rates are doing? If they are not changing much then it means that financial markets are not panicking about possible rate rises. Depending on your amount of borrowing it may be worth fixing now.
As with all advice we would suggest that a structured business plan going forward is a good idea – and if you need any help then make sure you get in contact with Madeleys.