Industry relief as interest rate sticks

By FWi staff

BRITAINS agricultural industry breathed a collective sigh of relief today after the Bank of England decided to leave interest rates unchanged.

The banks Monetary Policy Committee announced at mid-day that the base lending rate would be remain at 7.25%.

Sion Roberts, NFU chief economist, welcomed the decision. But he warned that future rate rises could not be ruled out. “The light at the end of the tunnel for agriculture will be when we know interest rates have peaked,” he said.

George Dunn of the Tenant Farmers Association said it was good that the MPC had resisted pressure for a rate rise. “With the Pound now falling against the Deutschmark, hopefully next time theyll actually be brave enough to reduce rates,” he added.

Analysts say the money markets had already decided that rates would be left unchanged – hence the recent weakening of the Pound from its 10-year high of DM3.10 against the Deutschmark to DM3.04. But at the close of play today (Thursday), Sterling had crept up by almost a pfennig to DM3.048.

The Pound is now trading at 1.884% above its permitted Real Monetary Gap of 5% and a Green Pound revaluation on May 3 is now accepted as inevitable.

“The general feeling is that the Pound is still going to be revalued – probably by about 3.4%,” said Peter King, economist at the Home-Grown Cereals Authority. That would mean a similar reduction in intervention prices and support payments to farmers.

Interest rates have been raised five times from 6.00% since Labour came to power almost a year ago. They were last raised in November, when the Bank of England increased the cost of borrowing by 0.25% to the current level of 7.25%.

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