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What could interest rate rises mean for your business?

The Bank of England last week announced a 0.25 per cent rise in the base rate



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What could interest rate rises mean for your business?

Businesses need to prepare for further interest rate rises, following the Bank of England increasing the base rate by 0.25 per cent rate last week.

 

Governor Mark Carney announced a rise to 0.5 per cent last Thursday (November 2).

 

Currency

 

But, for the moment, the biggest effect will come from any changes in the exchange rate, according to Strutt and Parker’s head of farming in the Morpeth office, Matthew Curry.

 

“If sterling becomes more attractive, it could reduce exports and could have a huge effect on grain prices,” he said.

 

But a fall in sterling could impact farmgate prices across all sectors, which have received a boost from the weaker pound, despite increases in input prices.

 

Andrew Fallows, Head of Rural Agency, Carter Jonas warned businesses would ‘do well to recognise’ it could show the direction of travel.

 

“It may not put much pressure on the agriculture sector initially, but farmers should take this as a wakeup call, and as an opportunity to revisit funding within their businesses, whether it is bringing forward investment decisions, or taking advantage of fixed rate loans," he said.

 

“In fact, broadly speaking, the fixed rate market had already taken stock of the rise in rates, and adjusted accordingly.

 

"Funding for agricultural investments remains competitive, and for the right business, fine margins are still offered.”

 

Mr Curry agreed and advised farmers who could find an attractive contract or price to lock in at it as sterling would react to any more increases.

Martyn Dobinson, director in the Manchester office of Saffery Champness, outlined the pros and cons of the rise.

Cons

  1. The cost of borrowing will increase
  2. BPS and other EU funded grants administered in euros may fall in sterling terms
  3. UK exports may become less competitive
  4. Imports may become more competitive
  5. More expensive variable rate borrowings could push consumers away from premium UK products

Pros

  1. Imported fertiliser and machinery may become cheaper
  2. Non-borrowers or fixed rate borrowers could be in stronger position
  3. Farmgate commodity prices could increase
  4. Businesses looking to expand could find cost of land falls
  5. Investors may look away from farmland, meaning less competition for land
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