Dairy Event 2010: Farmers should think about fixing borrowings
Interest rates could start to rise early next year, so farmers should think about fixing a proportion of their borrowings, according to banks at the Dairy Event and Livestock Show.
Base rate has remained at its record low of 0.5% for the past 18 months, but rates are likely to start creeping up as the economy comes out of recession. The timing of any increase is uncertain though.
James O’Mahony, head of agribusiness at Clydesdale Bank, said no rate movement was likely until the second quarter of 2011 at the earliest, while Lloyds TSB predicted the first rate rise, to 0.75%, in Q1 of next year. Barclays‘ Euryn Jones said a larger increase of 0.5% could to take effect in Q1 2011.
“We’re predicting a 0.5% rise in every quarter next year, so could be looking at base rate of 2.5% by the end of next year,” Mr Jones said.
“Fixing a proportion of debt will help manage exposure to any future rate rise,” Mr O’Mahony added.
Any rise in interest rates could also see sterling strengthen against the euro and farmers were advised to think about fixing next year’s single payment exchange rate. Currently one euro buys around 82p, but sterling could strengthen to €1 = £0.80 by the end of this year and possibly €1 = £0.78 by next year, banks suggested.