Borrowing levels by Britain's farmers have broken the £10bn, the Bank of England has revealed.

Total agricultural borrowing grew by £512m or 5.02pc in the three months to June, bringing the total national lending to the farming industry up to £10.19bn.

This compares with £9.44bn at the same time in 2007 - an increase of 7.37pc. Deposits are down £148m from the previous quarter, taking the value of deposits held by UK farmers to £4.87bn.

Paul Spencer, agriculture director for Lloyds TSB Bank and the Agricultural Mortgage Corporation (AMC), said: “The Bank of England figures bring the issues facing the industry into sharp focus.

“Despite significantly increased market prices for most agricultural products over the last 12 months, debt has risen. This clearly reflects the massive increase in input costs which is impacting upon cash flow and profitability.

“We have seen many cases of overdrafts being extended to cope with not only increased input prices but also much tighter credit terms from suppliers, particularly fertiliser. Coupled with this has been increased forward purchasing as a hedge against further cost inflation. The concern must be whether output prices remain high enough to enable satisfactory profits to be generated over the coming year.

“We have already seen grain prices falling back significantly. If businesses are locking into input costs they must also consider locking into forward sales contracts where possible, to secure a profit margin.

“This illustrates that although costs are rising, farmers are showing an increased optimism on the back of improved commodity prices, and are taking the opportunity to invest in new plant and machinery, buy extra land or make changes to their businesses that will secure sustainable profits in the years ahead.”