Base rate rises to 0.75%, adding to farm costs

Bank base rates have risen by 0.25 percentage point to 0.75%, following the most recent meeting of the Bank of England’s Monetary Policy Committee.

The rise had been widely expected and follows two months (May and June) of inflation sitting at 2.3%, above the Bank’s 2% target.

UK agriculture was borrowing a record £18.86bn from banks by the end of June 2018, an increase of £215m (1.1%) on the same date a year earlier.

A good portion of this will be on fixed rates but if the total was subject to the 0.25-point base rate increase it would cost the industry more than £471m extra in interest charges.

“The decision is an additional factor in an already volatile environment for farm businesses,” NFU economist Anand Dossa said.  

“Increasing interest rates today must not slow vital investment in farming’s future.

“This summer’s drought shows the importance of investing in farm businesses to improve their resilience in the face of an increasingly volatile climate.”

Higher food and oil prices look like continuing to push up the Consumer Prices Index (CPI), with food price inflation estimated at 1.6% in July compared with 1.2% in June.

The CPI rose throughout 2016 and almost the whole of 2017, stabilising briefly in December of that year.  

See also: Ask the right questions to get the right farm finance deal

It then fell through the first four months of 2018 but rose to 2.3% in May and stuck at this level in June.

Inflation is expected to fall to the Bank’s 2% target by 2020.

Base rate highs, lows and moves

  • Base rates last rose in November 2017, when they moved up from 0.25% to 0.5%. Prior to this they were at 0.5% from March 2009 to August 2016
  • The base rate last hit double figures in September 1991 when it was raised to 10.375%
  • The highest base rate since January 1975 was in November 1979, when it peaked at 17% and remained at that level until the following July, when it was reduced to 16%.

 

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