Global risks keep interest rates high

In the AHDB February Outlook we predicted that interest rates would be likely to start dropping late Spring/early Summer, with a gentle downward trajectory throughout the year.

The downside risk was inflation – with inflation still well above the Government’s 2% target, it would be difficult for the Bank of England to reduce rates, despite the flat growth in the UK economy.

Since the Outlook was written in early February, those downside risks have magnified. Attacks by Houti rebels on commercial shipping have continued, forcing many ships to take a longer route around, and adding to both transport time and costs. This is driving inflation for imported goods and is likely to prevent headline inflation dropping as much as was previously expected in Q1 and Q2 2024.

The upshot of this is that unless hostilities cease, the UK is unlikely to see interest rates dropping now until Autumn 2024. For many borrowers coming off fixed rate deals during 2024, this will mean higher repayment costs going forward.

This is of concern to levy payers with the latest data from Farm Business Survey showing the average level of debt across all farms in 2021/22 was approximately £272,400, an increase of £26,300 from the previous year (Source: UK Gov).

This means careful attention should be paid to the structure of debt within the business and the effect repayments have on cash flow. Always speak to your financial advisor, but an illustrative example can be found here.