Farmers are being encouraged to strengthen their financial planning, as interest rates remain high despite a reduction in the Bank of England base rate.
The Bank of England recently announced a new base rate of 4.5% - a reduction of 0.25 percentage points - bringing rates to their lowest level since mid-2023.
However, the economic outlook remains challenging with the bank’s governor, Andrew Bailey, revealing the downgraded UK growth forecast for 2025 is now projected at 0.75%, down from 1.5%.
Government statistics released in December 2024 highlighted the increasing financial strain on the sector with average farm liabilities reaching £294,600 in 2022/23 - an 8% increase from the previous year.
Responding to this, Greg Ricketts, director at GSC Grays, warned that the debt burden currently carried by farm businesses remained a concern for the industry.
He said that despite the slight rate cuts, elevated interest rates continued to exacerbate debt concerns for many.
“While overall inflation in agriculture fell by 3.9% in the year to November 2024 largely thanks to lower oil and livestock feed costs, essential expenses such as veterinary services and equipment maintenance continue to rise.
"While a small interest rate cut is good news, the broader economic conditions suggest further rate reductions may be slow to materialise."
Mr Ricketts added: "We are unlikely to see rates fall below 4% this year due to slow economic growth, rising inflation, and global trade uncertainties, including new US tariff policies.
“That is why farm businesses need to adopt a strategic approach to ensure they are squeezing gains out of all the available margins.”
Against this economic backdrop, Mr Ricketts stressed that now more than ever was crucial for farmers to stay well-informed and equipped with the right knowledge.
Farmers should increasingly implement key strategies, including budgeting and benchmarking, to gain a clear understanding of production costs, especially amid reductions in direct subsidies, he said.
Mr Ricketts added: "Farm businesses can ‘control the controllables’ to help mitigate the impact of external challenges such as weather, government policies, and global market shifts.
"This involves managing production costs effectively, adjusting enterprise mix and farming systems, engaging with Environmental Stewardship schemes and strengthening financial planning through budgeting and forecasting."
Mr Ricketts said he believed that benchmarking had never been more important, with top-performing farm businesses continuing to adapt and thrive even in challenging times.
“Successful farms share common traits, including minimising overhead costs, setting clear financial goals and budgets, benchmarking against industry standards and staying informed on market trends.”
