The Strengthening Sterling

The Pound is currently stronger against the Euro than is has been since the end of 2012.  It has also gained substantial ground against the US Dollarputting it at a 5½ year high.  This is a reflection of the strengthening economy and growth figures that the UK is returning, and the lack of growth seen elsewhere. The currency markets are building in an expectation of a base rate rise in the UK ahead of the Eurozone and the US.  The chart demonstrates the recent moves and compares the current positions of Sterling against its relative values over the last 5 years.

Whist it is clearly great news to see the UK economy appearing to make headway, this means that overall, the returns for agriculture will be depressed.  The exchange rate affects both the subsidy receipts and markets too.  The Single Payment is calculated in Euros and converted into Sterling, at a rate that we will find out at the end of September; the stronger the Pound, the fewer pence each Euro will buy (be converted into).  Likewise, agricultural outputs will lower in value because they will convert into more Euros, making exports more expensive in the EU.

Of course, inputs that are imported into the UK will be lower in price but if a farm makes money at a lower exchange rate but this tends not to be enough to compensate for the reductions of income.

EXCHANGE RATES – Source: ECB