Bank of England flags agriculture as sector under financial stress

Agriculture has been flagged by the Bank of England as a sector facing “elevated financial stress” as rising fuel, fertiliser and energy costs linked to conflict in the Middle East continue to squeeze farm businesses.

The Bank’s latest business conditions summary identified agriculture alongside hospitality, retail and construction as sectors facing growing financial strain amid rising costs and weaker confidence across the economy.

The warning comes as the NFU continues talks with both government and banks over support for farmers facing mounting input costs and increasing pressure on profitability.

The Bank said concerns over food inflation remained higher than for most other goods because of increasing energy, transport and agricultural costs. It also warned food price inflation could reach 6-7% during the year.

NFU deputy president Paul Tompkins said the findings would not come as a surprise to many farmers and growers already dealing with soaring electricity, fuel and fertiliser bills.

“For some time, we have been seeing higher electricity, fuel and fertiliser costs adding further strain to already stretched farm budgets,” he said.

Tompkins warned farmers were unlikely to benefit from rising food prices despite increasing production costs across the sector.

“Now this report is suggesting that food price inflation is expected to reach 6-7% through the year due to rising costs, yet farmers are unlikely to see much of that return,” he said.

“This is something that needs to be taken very seriously – farmers and growers can’t absorb additional increases in costs.”

The NFU said it was continuing to work with government “at the highest level” while also holding regular discussions with banks to help ensure farmers could continue accessing lending and working capital during a difficult trading period.

The Bank of England’s agents warned the conflict in the Middle East had “eroded confidence and dampened prior expectations for a modest pickup in real activity in 2026”.

As disruption continues around the Strait of Hormuz — a key route for global oil, gas and fertiliser supplies — higher energy prices are expected to feed through into fertiliser and agrichemical costs over the coming months.

That is likely to create further financial pressure on farm businesses already facing volatile markets and rising input costs.

The report also highlighted the particular vulnerability of rural households to rising transport and energy prices, where higher travel costs are often unavoidable.

“Household participants continue to feel pressure from rising prices, with food prices a major concern,” the Bank’s summary stated.

Tompkins said regular communication with banks remained important given the role lenders play in supporting farm cashflow and investment.

“It is also important we have regular conversations with banks, which play an important role in providing lending opportunities and working capital for UK farmers and growers,” he said.

The warning comes amid growing concern that rising production costs, weaker confidence and continued geopolitical instability could place further pressure on farm profitability and food prices through 2026.