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Photo of Sterling continues to weaken

Bethan Wilkins

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AHDB Pork Market Intelligence

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Sterling continues to weaken

Home \ Prices & Stats \ News \ 2016 \ October \ Sterling continues to weaken

The continued weakness of the pound against the euro post-Brexit is helping to support prices for most agricultural outputs, including pigs. It will also mean higher overall payments to those farmers receiving Basic Payments in sterling.

The value of sterling is influenced by factors including economic data, policy updates and perceptions of economic and political stability. However, the EU referendum result has been the biggest single influence this year. The value of sterling saw its biggest daily fall ever against the euro following the vote to leave the EU and has continued to decline since then. In early trading on Friday, the pound was trading close to £1 = €1.11, a five-year low. A year ago, £1 was worth around €1.35. Low growth forecasts and low interest rates, coupled with the uncertainty around Brexit means the value of sterling is not expected to rise significantly in the short term.

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The exchange rate is important to the pig market because it makes the price of imported pork more expensive in the UK. To illustrate this, the current EU average reference price of €167 per 100kg is equivalent to around 144p/kg, slightly above the UK price. However, at the pre-referendum exchange rate, it would equate to less than 131p/kg, below the UK level. At last year’s exchange rate it would be lower still, around 123p/kg. Although the EU price is not the only factor influencing UK pig prices, it is an important one and this shows how much difference the exchange rate may have made.

The exchange rate for CAP Basic Payments is now set according to an average rate for September. Based on the 2016 exchange rate, basic payments in England will rise from £178/hectare in 2015 to £208/hectare in 2016, outside moorland areas. This represents a 16.6% increase. The government has announced that the Basic Payment will continue to be paid to UK farmers until 2020, despite the vote to leave the European Union. This has given some certainty around income for at least the next four years.

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Stephen Howarth, Market Specialist Manager
Stephen.howarth@ahdb.org.uk