Farmers to save up to £250m as base rate falls again

Lloyds TSB Agriculture and The Agricultural Mortgage Corporation (AMC) have underlined their commitment to farming customers by passing on, in full, today’s base rate reduction.

Paul Spencer, Agriculture Director for AMC and Lloyds TSB Agriculture, said: "When added to the reductions already announced in the past 12 months, a "rough calculation" would suggest an annual saving in interest payments in the order of £200m – £250m for UK agriculture if base rates stay at 1.5% for the whole of 2009. In simplistic terms this is the equivalent of around £3,000 for every £100,000 of variable rate borrowing since January 2008."

Whilst today’s reduction will ensure those with variable rate loans and overdrafts will see an immediate benefit, volatility remains a key challenge and farmers should try to counteract it through employing a robust approach to managing financial risk.

"Experience shows that when Bank of England base rate reaches the "bottom of the curve" fixed rates tend to rise," says Mr Spencer. "Against this backdrop, farmers should carefully consider the benefit of protecting against any future rise in finance costs by fixing the rate on their long term borrowing. I would of course add my usual caveat that independent professional advice should be sought before fixing interest rates for the long term."

"This will give farming businesses a degree of certainty when it comes to planning future investments, allowing them to take any development or expansion opportunities when they arise."

"Long term planning for a long term business is the maxim that will help many farm businesses through the recession," says Mr Spencer.

With the downward trend in interest rates also influencing the sterling / euro exchange rate, some farmers may also look to protect themselves from future adverse exchange rate movements.

"The Lloyds TSB Agriculture and AMC commitment to our farmer customers remains as strong as ever and we will do whatever we can to assist businesses through the recession. We will continue to provide sound advice to ensure their businesses are strong and well-ordered financially," concluded Mr Spencer.