Currency exchange rates are set for a major shake-up in the next 12 months, which could propel the euro to new heights against the pound, delivering a significant income boost to British farmers.

HSBC economists predict the euro will be worth 75p by September 2007, says the bank’s senior economist Mark Berrisford-Smith in the latest edition of Taking the Pulse, launched at the Royal Show.

Continued weakening of the US dollar is likely to trigger a chain of events that could see the euro break out of its three-year narrow trading range against the pound.

Uncertainty over US interest rates and the country’s huge current account deficit had made financial markets jittery.

“Having held broadly steady through the closing months of 2005 and the early months of this year, heavy selling started in the final week of April,” said Mr Berrisford-Smith.

HSBC now expects the dollar to suffer a period of sustained depreciation through to the end of 2007, falling to a new low of about 1.4 to the euro.

“The big question for UK farmers is how will sterling fare as it is buffeted by what looks like another seismic shift in the foreign exchange markets,” said Mr Berrisford-Smith.

“Just as the dollar is coming under strong selling pressure, so the UK could fall victim to such concerns.

“The UK’s current account shortfall is growing, while confidence is also eroding in Gordon Brown’s management of the public finance.”

Such concerns may not arise when this year’s round of single farm payments are converted from euros into sterling at the end of September.

But they could come into play the following year, said Mr Berrisford-Smith.

If the euro did reach 75p, that would give farmers a significant income boost, turning an SFP income figure of €325/ha into £244/ha, almost £20/ha more than if today’s exchange rate were used.

It would also make exports cheaper, boosting UK agriculture’s competitive edge, he added.

robert.harris@rbi.co.uk