Bank of England hikes rates to battle inflation: UK feed industry group warns about costs for businesses

The bank's monetary policy committee met today to review the UK's base interest rate as it tries to curb rampant inflation, which currently sits at 8.7% - well above the bank's 2% target.

The increase in the interest rate, which was the bank’s 13th in a row, was somewhat surprising, with the majority of economists predicting a smaller quarter-point hike, according to an AP story​.​

And the bank’s committee indicated there could be further increases.

‘Locking in’ inflation​

The Agricultural Industries Confederation (AIC), the UK trade association for agri-supply businesses including feed manufacturers, had warned the bank, before today's rate-setting meeting, against ‘locking in’ inflation.

Robert Sheasby, AIC’s chief executive, in an emailed statement to FeedNavigator, said: “Today’s decision by the Bank of England to increase interest rates by 0.5% is a stark reminder of the inflationary pressures that agri-supply businesses and consumers continue to face.

“Ahead of today’s announcement, the AIC wrote to the Bank’s governor, Andrew Bailey, to voice the concerns of members in the animal feed and other sectors.

“Additional finance costs on agri-supply businesses through base rate increases will lead to increased costs for farm businesses, processors, food manufacturers and ultimately consumers.

"This will further lead to AIC member businesses and farming customers to use debt to finance transactions on large scale purchasing accelerating this cost and diminishing the reductions seen in some spot prices."

Question mark over effectiveness of raising interest rates​

Interest rates remain the Bank of England's primary tool to lower inflation, despite debate over its effectiveness.

The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, and so bringing down demand and therefore easing price rises, noted a BBC report ​​on the rate hike. "However, the process also drags on the UK economy, which is struggling to grow," concluded that piece.

Commodity prices 

In his letter to the Bank's governor, Sheasby noted that AIC members were also reporting that their employees are making noises about in-year increases in salaries to help them with the higher cost of living, including impacts arising from rents and mortgage rate changes.

"Members have highlighted that as the next quarter develops, subject to any unforeseen impacts, reduced commodity prices should be expected, which in turn should benefit the consumer. This can only happen if subsequent costs to business have not been put up by additional finance to business and employees."