Tuesday, September 29, 2020

Banker predicts end of low interest rates

December 9, 2010 by  
Filed under News & Business

THE cost of farm borrowing could soon rise – despite another Bank of England decision to leave interest rates unchanged, believes a banker.

Signs are emerging that interest rates may increase significantly in the not too distant future, even though they remain at 0.5% for now, said Dick Mason, agricultural policy director for Lloyds TSB.

“For interest rates to remain so low for such a long time is unprecedented and many farmers have taken up the opportunity in the last year or so to invest in their futures by borrowing at very favourable rates.

“There will be many more, however, who are still deliberating over their future investment. It is these who should now factor into their thinking the possibility of a significant rise in interest rates over the next few years.”

Lloyds TSB economists suggest that economic growth might be sluggish in the first half of 2011, but may well pick up into 2012. This could lead to a steady increase in base interest rates, Mr Mason said.

The prediction is that the base rate will be 0.75% by the end of 2011 and up to 2.5% by the end of 2012. The LIBOR rate at which banks lend to each other was already showing signs of increasing, said Mr Mason.

The indications were that interest rates could be significantly higher within a couple of years. “With confidence in farming increasing, now might be a good time to consider financing investments that will add to the future strength of your business.

Mr Mason reported that 2010 had seen significant investment by farmers, with new grain stores, slurry management systems for NVZ compliance, and renewable energy projects of particular interest.

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