Lending to agriculture hit an all-time high of £10.6bn at the end of June 2008, according to figures released by the Bank of England today (4 August).

The figure was £889m (9.1%) higher than the same period in 2007, when total lending was £9.7bn, and 5.2% higher than March this year.

The greatest increase in borrowing was on arable farms, where higher returns encouraged many farmers to replace ageing machinery, Barclays’ Euryn Jones said.

"Lending figures also reflect two other key inflationary trends that farming businesses have experienced during the first half of this year,” he added. “Farming inputs and fertiliser prices in particular, have increased dramatically in recent months. Not only have prices risen sharply, but altered terms of trade mean that inputs have to be ordered and paid for earlier than usual."

Although dairy farmers had also seen sharp increases in costs, borrowing for this sector had declined, as higher milk prices had enabled dairy farmers to operate more profitably, he said.

One of the few costs to fall over the past year was finance charges, he added. This time last year, the Bank of England base rate was 5.75%, compared with the current 5% - this equated to a saving of £750 per annum for every £100,000 borrowed.

Mr Jones said that while the latest lending figures were significant, the UK farming balance sheet remained “exceptionally robust” and most farms were well able to service their debts.

“Despite concerns that some have about the potential impact of current financial market conditions, the figures also clearly demonstrate that lenders are still providing finance for the sector.”