Dont look to weak £ for salvation in 99
FARMERS should expect another testing year ahead, as sterling is likely to remain in demand on the currency markets for some time to come, and commodity markets look distinctly flat.
The warning comes from Francis Mordaunt of consultants Andersons, after the launch of the firms annual Outlook publication. Mr Mordaunt says the £ will only weaken against the euro by about 3% this year, making it worth 72p compared with its 70p launch value. That is a sharp contrast to some banks which forecast an 11% weakening over the next 12 months.
"Do not expect a weak £ to be the salvation of farming in 1999. First, the money markets expect little change ahead, they were not wrong last year. Second, UK interest rates will fall further, but not too rapidly, and this will tend to keep sterling relatively strong."
Mr Mordaunt predicts a base rate of about 5.5% by the end of 1999, since inflation control, rather than stimulating the UK economy, is the Monetary Policy Committees aim. "Bring interest rates down too fast, and this could cause a boom in the housing market and stimulate other inflationary effects."
Even if interest rates fall faster, uncertainty over economic and monetary union should maintain much of sterlings strength, he adds. "Sadly, for UK farming and industry, the £ looks likely to keep its safe haven status for a while yet."
World markets remain unexciting, says Mr Mordaunt. "For most commodities there is plenty of capacity in the world. So prices will not shift radically."
The one exception is wheat – lower plantings and a poorer 1998 world harvest could bring stocks closer to critical levels, he notes.
Another poor global harvest this year could push US soft wheat prices (the worlds barometer value) up from the current $102/t (£62/t) to about $140/t (£85/t), he predicts. That, coupled with a slight weakening of the £ against the $, could allow UK prices to rise to about £90/t next marketing year. *