Lloyds TSB responds to second interest rate rise in three months

Commenting on the recent decision by the Bank of England Monetary Policy Committee (MPC) to increase interest rates by 0.25% to 5.25%, their highest level since September 2001, Tim Porter, Agriculture Director, Lloyds TSB Business Banking, said:

"This is the second rise in three months. Lloyds TSB forecast that consumer price inflation could well remain above the all important target of 2.5% for all of 2007, and with this in mind, another rate rise was certainly on the cards.

"We had expected the Bank of England to raise rates in February but concerns about stronger upside inflation risks were apparently compelling enough for the Bank not to delay. The question is whether this is the start of a sequence of rate increases. We don't think so, however we do believe there is a good chance that rates could touch 5.5% by the middle of the year. The debate is now whether this will cool the economy sufficiently to bring inflation back down to the 2% target.

"With relatively high fuel and input prices the further increase in finance costs will undoubtedly be unwelcome and will have a significant impact on all our farming customers whether they are borrowing or depositing funds.

"On a more positive note farm asset values, particularly buildings and land, continue to increase in value. Higher grain and commodity prices will also help offset the effects of this rate increase on some farms.

"Prospects on the investment front are still fundamentally good. For those with surplus funds there are opportunities to look at ways of increasing returns on their deposits. Lloyds TSB Agriculture fixed rate loans remain attractive. Our advice remains the same. Farmers wanting to reduce costs and help plan their borrowing commitments should speak to their financial advisors, including their local Bank Manager, to consider the effect on their business and discuss ways of mitigating the effects of interest rate movement," he said.