Agenda item

The Head of Financial Management presented the report and explained it would go to the Cabinet meeting next week and full Council at the end of the month in line with the CIPFA code of practice. 

He explained the key aspects in respect of investments:

·  Investment performance – average rate of interest earned was 4.64%, 0.09% below the benchmark rate (4.73%).  Returns in September exceeded the benchmark for the first time in recent months as previous investments fixed at lower rates dropped out.

·  The average return has continued to increase during the year from around 4% in April to just above 5% in September, as the Bank of England interest rate rises continue to feed through to our investments.  The tables in Appendix 3 show the monthly rates earned with a comparison to the previous year.

·  Paragraph 3.13 provides the split of returns between short-term investments which averaged 4.7% for the period and the long-term Strategic Investments which averaged 4.4%.

·  Paragraph 3.12 updates on the continued impact on the value of the Council’s strategic long-term investments, which have reduced by £740k since the start of the year.  This is due to the current economic environment of persistent inflation and high interest rates impacting on the value of equity, bonds and property.  We expect the values to stabilise and start to recover once there is more certainty that the peak in interest rates has been reached.

·  Appendix 2 highlights that the average investment balance over the first 6 months was £54 million which is in line with the balance as at the end of September.  The Appendix also provides further information on the make-up of the investment balances in terms of where they were invested and the credit rating of the investments. The majority of short-term investment continues to be held with Money Market Funds for liquidity and diversification and we have increased investment with the government’s Debt Management Deposit Facility during the period.

·  The increased interest performance has resulted in additional interest income over budget of £300k.

Borrowing:

·  The position on borrowing is covered in the section starting at paragraph 3.6. Borrowing at the end of the first 6 months was £218m an increase of around £8m from the start of the year reflecting £10m of short-term loans taken out in April to cover the annual pension prepayment and £2m of scheduled principal repayments in respect of the Annuity Public Works Loan Board loans. Full details of the Borrowing portfolio at year end is provided in Appendix 4.

·  Paragraph 3.17 refers to the £20m Lender Option Borrower Option loans where the risk of the lender increasing the rate were highlighted at last committee. Although outside the time frame of this report, an update was given that the lender of £10m of these loans did propose a rate increase from 4.5% to 5.88% last week which was above equivalent PWLB loan rates for similar loans. The Council exercised its option to repay the loan and will continue to monitor market rates and cashflow balances before taking out replacement borrowing. The rate of the remaining £10m was not increased and the next option for the lender is now next April.

·  Borrowing interest costs are forecast to be £800k lower than budget as result of the delayed borrowing required to fund the capital programme.

It was confirmed that all the Treasury Management Indicators reported in Appendix 1 were within approved limits.  The Economic & Market Review in Appendix 5 highlights that inflation remained persistently high over the period, although recent data published was lower than expected and this was followed by the Bank of England deciding to keep interest rates on hold at 5.25% in September.

Our treasury advisors revised its forecast to reflect the central view that 5.25% will now be the peak in Base Rate, with short term risks to the upside if inflation increases again, but over the longer term they are predicting rate cuts from the third quarter of 2024 to a low of around 3% by mid 2026.

Gilt prices & PWLB rates remained volatile over the period, The rate of a 20-year annuity loan from the PWLB was 5.3% at the end of September, with current rates around 5.4%.

The Council continues to closely monitor its cash position and any potential need to borrow and liaise with our treasury advisors to discuss the timing, duration of any future borrowing should the need arise.

RESOLVED

1)  to note the Treasury Management Report to 30th September 2023, prepared in accordance with the CIPFA Treasury Code of Practice; and

2)  to note the Treasury Management Indicators to 30th September 2023.