Farm businesses with long-term loans should not be deterred from planning for potential interest rate rises, despite the Bank of England's decision to maintain interest rates at their current level, says Lloyds TSB.


Bank of England Governor Mark Carney announced last week (7 August) that interest rates would be kept at 0.5 per cent until employment fell below 7 per cent, which is predicted to take up to three years.


The Bank of England hopes the move will reduce uncertainty in the economy by indicating to companies and mortgage borrowers that the rates will not be revised.


Despite the short-term interest rate stability, Lloyds TSB Agriculture Policy Director, Alick Jones, says farm businesses with borrowings should not take a knee-jerk reaction and alter their approach to interest rate risk management.


"While Mr Carney's forward guidance announcement gives some welcome stability to the marketplace, it hasn't removed the risk of interest rates moving against you completely," he says.


Mr Carney has put appropriate safeguard clauses in the Bank of England's policy in case of threats to financial stability or a danger of inflation getting out of control which mean that the rate is not necessarily set to be maintained for the full three years.


"Agriculture also borrows for the long-term, with the average term of debt for a farm business typically being in excess of ten years - significantly longer than the three years in the Bank of England's policy," Mr Jones adds.


"While forward guidance should be welcomed because it gives some stability and flexible support for the short term, it is still worth making sure your own interest rate management structure builds in the stability that is right for your business".


"Farmers with long-term loans should continue to manage their interest rate risk appropriately to their exposure.


"Talking to your bank now to find an option which is appropriate for you and your business will give piece of mind for the long-term and provide a platform to budget and plan for the coming years."