Weaker Sterling? Not for ages, say banks

By Robert Harris

FARMERS hoping for a weaker Pound to relieve the squeeze on farm incomes face a long wait, says one banker who predicts little change in the next 12 months.

Short-term, Sterling may even show further gains against the Euro, continuing the “relentless” rise seen during 1999, says Steve Ellwood, head of agriculture at HSBC Bank.

Speaking at the recent 2000 and Beyond conference at Newbury, organised by HSBC, Deloitte and Touche and Farmers Weekly, he said: “Forecasts by HSBC economists do not make particularly good reading.

“In 1995, the Euro was worth 83p. It is currently at or about 64p. We predict it will be fractionally lower in the second quarter of next year, falling to about 62p, before rising again to about 65p in the third quarter of 2000.”

With each 1p fall in the value of the Euro wiping £100 million off farm incomes, UK agriculture had already lost £2bn since 1995, he said. It stood to lose a further £200m in the next six months.

(Indeed, since the conference, the Pound has risen further, with Euro1 worth about 62.9p yesterday (Thursday).

“The biggest single impact on UK farm incomes has been the strength of the Pound,” said Mr Ellwood.

“The remarkably strong performance of the UK economy has put it in the good books of the global economy. This, and concerns over economic management in Europe have led to a relatively weak Euro.”

In the short term, the government could help by paying compensation for recent adverse trends in exchange rates, said Mr Ellwood.

“Next year, Brussels share of compensation for direct payments to arable, beef and sheep farmers will drop to £135m, compared with £300m this year.

The following year it will fall to £60m. In both years, the UK government could match the Brussels payment, but at this stage it has said it wont.

“There are occasions when we have heard the government say it would like to help farmers, but that it cant.

“This is a way that it could, quite legitimately. We shall, along with farmers leaders, continue to press the government on this matter.”

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