6.75% interest rate saves farmers 20m

05 November 1998

6.75% interest rate saves farmers £20m

By FWi staff

FARMERS stand to save about £20 million from todays cut in interest rates, economists said this afternoon (Thursday).

The Bank of England reduced the cost of borrowing this morning by 0.5% to 6.75%, following the monthly meeting of its Monetary Policy Committee.

The rate cut brought a net benefit of around £20m to the farming industry. Farmers with loans and mortgages will benefit, but those with savings will lose out.

NFU economists estimated that the rate cut would save farmers £35m on agricultural borrowings – currently estimated to be more than £7 billion.

But the Midland Bank said farmers with savings would lose out by £15-18m.

“Obviously the cost side comes into peoples minds first, but there are quite a number of farmers with deposits,” said Steve Ellwood, Midland head of agriculture.

By late afternoon, the Pound had fallen by just two pfennigs against the Deutschmark to DM2.74.

Analysts say Sterling must fall by a further pfennig to trigger a Green Rate devaluation, which would increase the value of farm subsidies.

The Pounds strength over the past nine months has been widely blamed for sucking in imports of cheap meat and making UK farm produce uncompetitive abroad.

The Agricultural Mortgage Corporation moved quickly to match the Bank of Englands move with a 0.5% reduction in its variable lending rate to 8.75%.

It is the second month running that interest rates have been reduced. Last month rates fell by 0.25% to 7%.