Interest rates rise again

The Bank of England has raised interest rates to 5.75%, the fifth rise in less than a year.

In a further attempt to curb inflation, the Bank’s Monetary Policy Committee agreed a 0.25% rise, warning that “most indicators of pricing pressure remain elevated”.

The move was widely expected as inflation has been running 0.5% ahead of the Bank’s 2% target.

The base rate is now at its highest since February 2001. However, some economists predict base rates could soon rise to 6%.

Steve Ellwood, head of agriculture at HSBC, said the rise was in line with expectations. “This is primarily because of rising inflation, both in the Consumer Price Index and in terms of concern over wage inflation.”

The rise would add £20-£25m to industry borrowings, and Mr Ellwood reckoned another 0.25% was possible.

“It is a further cost increase, and a reminder of the narrow margin between profitability and loss for most farm businesses.

“However we have seen prices and prospects improve in some sectors, and this has to be seen against a background of increased world demand and restricted supply for many agricultural products.”

Currency exchange rates had been affected by the move. The pound had strengthen more against the US dollar than the Euro, but British Eurozone exports would be marginally less competitive, he added.