Treasury Activity and Compliance Report 2025/26 - 6 months to 31 March 2026
Perth and Kinross Council · 22 April 2026
Back to Finance and Resources Committee — 22 April 2026 and its agenda
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Our vision is a Perth and Kinross where everyone can live life well, free from poverty and inequality ___________________________________________________________________ Committee: Finance and Resources Committee Date of Meeting: 22 April 2026 Report Title: Treasury Activity and Compliance Report 2025/26 – 6 months to 31 March 2026 Report Number: 26/112 Report Author: John Jennings Senior Accountant Organisational Lead: Scott Walker Chief Finance Officer ___________________________________________________________________ 1. Purpose 1.1 The purpose of this report is to update the Committee on Treasury Activity for the period 1 October 2025 to 31 March 2026 and to provide assurance on compliance with the Council’s Treasury Management Policy Statement (TMPS), Investment Strategy and Prudential Indicators. 1.2 This Treasury Activity and Compliance Report covers: Economic Background Treasury Activity Compliance Investment Strategy Compliance & Performance Prudential Indicators Conclusion Appendices 2. Recommendation 2.1 It is recommended that the Committee note the contents of this report. 3. Economic Background 3.1 The Bank of England’s Monetary Policy Committee (MPC) reduced the UK Bank Base Rate from 4.0% to 3.75% on 18 December 2025 due to weak economic growth and a steady fall in inflation over the period. The Base Rate has remained the same over the remainder of the period, despite initial expectations of a further reduction by March 2026. However, at the March meeting the MPC voted unanimously to keep rates on hold due to the risks of the Middle East conflict and concerns on the impact on inflation due to rising energy prices and
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market volatility. There was also weak growth in the economy and rising unemployment. 3.2 CPI inflation reduced from 3.6% in October 2025 to 3.2% in November 2025. Although there was an increase in December 2025 to 3.4% due mainly to food price increases, inflation fell again to 3.0% in January and February 2026 due to falling petrol prices and lower air fares after Christmas. UK GDP (Gross Domestic Product) remained at around 0.1% over the period with early 2026 data suggesting continued near zero economic growth. 3.3 Forecasts of the Bank Base Rate changed by the end of the period due to the risks from the Middle East causing rising inflationary expectations from the large increase in oil prices and supply pressures creating global economic uncertainties and therefore putting upward pressures on Inflation. 3.4 Internationally, the Eurozone experienced growth of 0.2% in the 3 months to 31 December 2025, whilst CPI Inflation reduced to 1.9% in February 2026. Eurozone interest rates remained at 2.15% in March 2026. In the US, GDP grew over the period to 0.7% at the end of December 2025, whilst inflation reduced over the period. The US interest rate was reduced to the range of 3.50% to 3.75% in March 2026. 3.5 The Public Works Loan Board’s (PWLB) certainty fixed interest rates for the 6 months to 31 March 2026, which are based on yields on UK gilts, are shown in the graph at Appendix I. Rates fell over most of the period, particularly for short term borrowing, before rising sharply in March 2026 following the start of the Middle East conflict. The 1-year rate initially fell over the period from 4.56% to 4.25%, before rising and peaking at 5.25% before ending the period at 5.02%. All other rates followed a similar pattern, with the 50-year rate falling from 6.0% to 5.61%, before rising to 6.24%, and ending at 6.03%. 4. Treasury Activity 4.1 A summary of the Council’s treasury position and transactions is shown at Appendix II. The main activities are detailed below. 4.2 During the period 13 new PWLB loans were borrowed for a total of £190 million, consisting of: 4 fixed maturity loans totalling £55 million at an average rate of 4.31% and for an average duration of 1.6 years, and 9 fixed rate EIP (Equal Instalments of Principal) loans totalling £135 million at an average rate of 4.32% and for an average duration of 3.4 years. 4.3 There was also the repayment of one maturing fixed rate maturity PWLB loan of £5 million borrowed at 4.82% for 1 year. In addition, there were also the scheduled instalments made on two PWLB EIP loans for £5 million and £6.25 million.
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PWLB Premature Repayment of Debt 4.4 There was also the premature repayment of eleven PWLB fixed maturity loans over the period totalling £55.5 million at an average rate of 4.70%. 4.5 In November 2025, following a period of rising longer-term interest rates, six PWLB fixed Maturity loans totalling £28 million were repaid, at an average interest rate of 4.52% and with between 30 to 35 years left to maturity. As the interest rates on these loans were lower than the comparative PWLB rates at that time, a discount of £2.268 million was received from the PWLB. In addition, a total of £342,600 in interest charges will be saved over the next eight years, and interest charges are anticipated to be neutral thereafter. 4.6 Following a further spike in longer term rates, there was further early repayments made on the 23 February 2026 of four fixed Maturity PWLB totalling £22.5 million at an average rate of 5.02% and with between 30 to 38 years left to maturity. This package of repaid debt allowed for the early repayment of one historic loan of £7.5 million at 7.5%, by including other loans to offset the premium on the higher rate loan. Overall, a net discount of £108,400 was received from the PWLB together with annual savings of £155,000 in interest. 4.7 There was a final repayment of one fixed maturity PWLB loan for £5 million at 4.22% on 9 March 2026 and with 38 years left to maturity. This generated a discount of £668,500, to offset the increase in interest rates on the Council’s borrowing at the start of March 2026. In addition to the discount received from the PWLB, the impact of these transactions on the Council’s interest charges is anticipated to be neutral. 4.8 The repayment of all the above loans increased the Council’s borrowing requirement for the year by £55.5 million. 4.9 Officers constantly assess the factors that are likely to impact on treasury management and take proactive measures to protect the Council’s interests. Just two days before the conflict in the Middle East escalated, following an assessment of the potential impact on future borrowing costs, the Council undertook £45 million of new borrowing at 4.45% (£25 million) and 4.46% (£20 million). Had the Council deferred this borrowing until required, it would have cost around an additional £418,000 per annum in interest charges over the next two years. Consequently, the Council improved its ability to invest in the short term, and to maintain its investment in the capital programme. On current cashflow estimates, the Council does not require to start borrowing its 2026/27 requirement until July/August 2026. 4.10 As a result of all the above transactions, the Council’s total long-term debt increased by £118.25 million from £688.95 million at an average interest rate of 2.86% to £807.2 million at an average interest rate of 3.05% as at 31 March 2026. 4.11 There were 22 short-term market loans borrowed in the period to manage daily cashflows. These were borrowed as part of the adopted strategy during periods when PWLB rates were high and allowed the Council to defer longer-term borrowing until later in the year. Consequently, a total of £141.5 million was
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borrowed for an average of 77 days at an average rate of 4.09%. There was £17 million of these temporary loans outstanding as at 31 March 2026. 4.12 Common Good and Charitable Fund balances held on fixed deposit with the Loans Fund increased from £2.711 million to £2.796 million over the six-month period, whilst the average interest rate decreased from 4.02% to 3.35%. Funds held from associated bodies and organisations reduced from £2.933 million to £2.501 million over the period, in line with their own cash flow requirements, whilst the average rate paid on these funds reduced from 3.32% to 3.09% in line with the rates applicable on individual loans depending on the balance held, and which are linked to the prevailing Bank Base Rate. 4.13 Short term cashflow surpluses are invested in a mixture of fixed term deposits, instant access accounts and money market funds. All investments were made in accordance with the approved Investment Strategy and Permitted Investments Fixed Term Deposits 4.14 Cashflow surpluses which arise during the year, and which are not immediately required, are generally invested in fixed term deposits for periods of up to 12 months, or up to 3 years where forecast cashflow requirements allow. 4.15 There were eight fixed rate deposits made in the six months to 31 March 2026 (totalling £46 million) at an average interest rate of 6.91% and for an average term of 21 days. This was an increase in fixed deposit activity in comparison to the previous 6 months to the end of September. The deposits were undertaken with other local authorities where opportunities arose within cashflow projections. However, there were few opportunities as a result of the Council’s current borrowing position, with most of these deposits occurring during March 2026, coinciding with the time where local authority lending rates are at their highest. The fixed deposits undertaken in the current period will generate interest of £144,583 by their maturity. Investments for Daily Cashflow Requirements 4.16 Cashflow surpluses which are required for more immediate needs were invested in the Council’s instant access and Money Market Funds. The investment transactions in the period can be summarised as follows: The daily average amount of such funds increased from £8.94 million in the previous quarter to £10.28 million at the end of the current period, reflecting the Council’s use of MMF’s for liquidity and lower balances available for investment. The average interest rate achieved on these accounts over the period reduced from 4.24% to 3.93%, in line with movements in the Bank Base Rate. Money Market Funds, which operate on instant access terms, were used extensively over the period. The average amount invested increased from £12.075 million in the previous period to £12.589 million in the current period, whilst the average interest rate reduced from 4.24% to 3.95%.
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The activity on these accounts reflects the need to keep a sufficient level of funds for more immediate cashflow purposes over the period. Interest generated on these investments over the 6-month period amounted to £459,763. 4.17 The total amount of investments outstanding as at 31 March 2026 was £21.917 million compared to £18.546 million at 30 September 2025. The overall average rate of interest on the investments outstanding increased from 4.15% to 6.02% over this period. This reflects the increase in interest rates available within the local authority lending market towards the end of the financial year. 4.18 Total income generated on investments undertaken during the period totals £604,347 (£595,366 in the 6 months to 30 September 2025). This measure reflects the total return on the investment activity undertaken in the period and is slightly higher in comparison to the previous quarter with an increase in fixed term deposit activity and higher local authority interest rates. 4.19 All of the above investment activities are consistent with the Council’s current investment strategy and cashflow requirements. 5. Compliance 5.1 For the period ending 31 March 2026, there were no breaches in compliance with the Council’s approved Treasury Management Policy Statement, Treasury Management Practices (TMP’s) or lending limits as detailed in TMP 4 (Approved Instruments, Methods & Techniques). 5.2 Appendix III shows the list of approved counterparties, based on the Council’s current lending policy, as at March 2026. 5.3 For the period ending 31 March 2026 the average closing cleared bank balance was £18,093.43 in credit. This reflects the application of the Council’s “sweep facility” operated by the bank, with any credit balance in excess of £35,000 being “swept up” overnight to the Council’s instant access account. 6. Investment Strategy Compliance And Performance 6.1 The Treasury Investment Strategy for 2025/26 was approved by the Council at its meeting on 5 March 2025 (report 25/39 refers). 6.2 In the current period, the level of the Council’s investments peaked at £76.375 million on 18 March 2026 following the new borrowing earlier in March and subsequently reduced to £21.917 million by 31 March 2026. The average daily investment balance over the period was £25.790 million, which reduced from an average of £29.589 million in the previous 6 months and from £33.154 million in the same period of last year. This highlights the steady reduction in investment balances over the last year as funds were applied in financing the approved Capital programme. By the end of March 2026, there were three fixed rate deposits remaining, whilst the instant access balances reflect the minimum requirements to maintain day-to-day liquidity.
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6.3 The approved Investment Strategy was applied in full over the period, with liquidity being maintained using instant access accounts and Money Market Funds as detailed in paragraph 4.16 above. There were no other risks identified in the period. 6.4 The Investment Strategy also incorporates investments held by the Common Good Funds. All such investments during the period were with the Council’s Loans Fund. The only Council funds held by external fund managers relate to Council-administered Charitable Trusts and are, therefore, not covered by this Investment Strategy. 6.5 The budgeted income in 2025/26 for Commercial Property investments is £1.866 million whilst the latest projection is at £1.891 million. There were no new property investments entered into during the current period. 7. Prudential Indicators 7.1 Prudential Indicators for 2025/26 to 2030/31 were approved by the Council at its meeting on 5 March 2025 (report 25/39 refers) as part of the Annual Treasury and Investment Strategy report. 7.2 The latest estimates of the Prudential Indicators are shown in Appendix IV and are based on the Council’s revised Capital Budget being considered at this Committee meeting. These show that the Council adhered to all Prudential Limits in the period. However, the annual Loan Charges relative to the Net Revenue stream and the Capital Financing (Borrowing) Requirement show an increasing trend, which reflects the latest estimates for the Capital Programme and interest rate forecasts over the period. Whilst they are forecast to remain comfortably within their limits, they will be kept under review. 8 Conclusions 8.1 The Bank of England’s MPC reduced the Bank Base Rate to 3.75% in December 2025. The Base Rate remained the same over the rest of the period due to the impact of the Middle East conflict and concerns for inflation. 8.2 Public Works Loans Board (PWLB) borrowing rates continued to be volatile over the period due to inflationary expectations and mixed economic data. During the 6-month period rates increased in all durations, particularly in March 2026. 8.3 There were £190 million of new PWLB loans borrowed in the period, together with the repayment of £71.750 million of PWLB loans. The early repayment of these loans during the period generated a premium of £2.901 million and discounts totalling £5.946 million to the Council, therefore generating £3.045 million in net income. These premature payments of debt are also estimated to save over £1.3 million in interest charges over the next few years. 8.4 There was also the continuation of short-term local authority borrowing in the first half of the period, whilst the Investment activity in the period consisted of a small level of fixed term deposits, with instant access and Money Market Funds used extensively to meet day-to-day cashflow requirements. The total level of investments outstanding increased.
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8.5 The Council adhered to its Investment Strategy and policies throughout the period, with no breaches in compliance. The Council’s Prudential Indicators were also adhered to throughout the period. 9. Impact and Value Assessment 9.1 This is an operational report, and as such, an impact and value assessment in not required. 10. Appendices Appendix I - PWLB Fixed Maturity Interest Rates from 1 October 2025 to 31 March 2026 Appendix II - Summary of the Treasury Position and Transactions from 1 October to 31 March 2026 Appendix III - Approved Investment Counterparty List Appendix IV - Monitoring of Prudential Indicators - Period ending 31 March 2026