City bankers' view of the financial markets

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Bankers' bonuses have been in the spotlight in recent days, as politicians and the media question the morality of multi-million pound payouts to City highflyers.

But it's not just bankers who get bonuses. Here at Farmers Weekly we too get the occasional perk, and I was especially delighted to receive my 2010 Simba calendar today with some lovely pictures of drills and cultivators.

O2 arena.jpgBetter still, yesterday three of us were invited to a pre-Christmas lunch with our well-resourced friends at Barclays.

As might be expected, there was a degree of opulence on display. The view from the 31st floor of Barclays' Canary Wharf HQ over docklands and the O2 Arena was spectacular. The food was straight out of Master Chef. And yes, that was an original Lowry on the wall of the private dining room.

The conversation flowed as easily as the wine, covering a wide range of subjects - from the state of the dairy sector, to succession planning (or lack of), to the future of agricultural shows...

But two things in particular stuck in my mind, the first of which was the bank's outlook for interest rates.

The Barclays guys said they were at the "top end" of industry forecasts. While most financial experts are suggesting a very gradual increase in Bank of England base rates over the next 12 months, Barclays reckons this time next year they will be up at 2% - a four-fold increase.

Also, there are signs that the LIBOR inter-bank lending rate is opening up a gap over base rates again, suggesting the cost of borrowing will go up sooner rather than later. (Having just taken out a new two-year tracker mortgage, this news was most unwelcome!)

The other subject was exchange rates, and again Barclays was at the "aggressive" end of the scale. A survey of top economists had revealed that most expected sterling to be valued at between 80p and 95p/euro in 12 months time.

Barclays said its predictions were for something near the bottom end of that range. On these grounds it made sense for people to consider locking into today's euro:sterling exchange rate for next year's single farm payment - and maybe even for the year after that.

Given the importance of exchange rates for the profitability of British agriculture, prospects of a strengthening pound and rising interest rates next year should be viewed with some alarm.

But as one of the senior Barclays executives at the lunch said, "if there is one thing you can guarantee about forecasts, it is that they will always be wrong." That's a relief!

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About this Entry

This page contains a single entry by Philip Clarke published on December 4, 2009 2:23 PM.

So who is Dach-ian Chee-oh-losh? was the previous entry in this blog.

UK dairy farmers to get €30m - but how? is the next entry in this blog.

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