Rate rise will add £15m to farm costs – Lloyds TSB

Commenting on the decision by the Bank of England Monetary Policy Committee (MPC) to increase interest rates by 0.25% to 5%, Tim Porter, Agriculture Director, Lloyds TSB Business Banking, said:

"With lending to agriculture currently standing at just over £9 billion we estimate this rate rise will cost the industry £15 million in extra interest payments.

"The increase, which was widely anticipated, is a response to economic growth currently rising by 2.8% a year, inflation above the 2% target (and likely to remain so in 2007), and a buoyant housing market. It is no surprise, therefore, that the Bank of England Monetary Policy Committee (MPC) took the decision to raise rates. We also anticipate a further rate rise in the not too distant future.

"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.

"Fixed interest rates for longer term borrowing 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 on their business," he said.