Treasury Activity and Compliance Report 2025/26 – 6 months to 30 September 2025
Perth and Kinross Council · 26 November 2025
Back to Finance and Resources Committee — 26 November 2025 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Page 1
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: 26 November 2025 Report Title: Treasury Activity and Compliance Report 2025/26 – 6 months to 30 September 2025 Report Number: 25/328 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 April to 30 September 2025 and to report 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: 1. Purpose 2. Recommendation 3. Economic Background 4. Treasury Activity 5. Compliance 6. Investment Strategy Compliance and Performance 7. Prudential Indicators 8 Conclusions 9. Impact and Value Assessment 10. 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 4.5% to 4% over the 6 months to 30 September 2025. There was a base rate cut to 4.25% at their meeting on 8 May 2025 as inflation had reduced, followed by a further cut on the 7 August 2025 to 4%.
Page 2
The latter cut was in response to low economic growth despite concerns over inflation rising again, driven by food and wage pressures. Consequently, it was expected that there would be a more gradual approach to further cuts. 3.2 CPI inflation increased to 3.5% in April 2025 from 2.6% in March 2025, before falling to 3.4% for May. However, it rose again and was 3.8% for July, August and September 2025. The largest contribution to the increases were a rise in food, transport and hotel prices. UK GDP (Gross Domestic Product) was 0.3% for the quarter to June 2025 and reducing from 0.7% in the previous quarter to 31st March 2025. 3.3 Forecasts of the Bank Base Rate were that they would continue to fall but at a slower rate than previously anticipated due to rising inflationary expectations and global economic uncertainties. However, following the inflation figure for September 2025, expectations are that inflation may have now peaked in the current cycle, and the next cut to the Bank Base Rate may come earlier than previously expected. 3.4 Internationally, the Eurozone experienced growth of 0.1% in the 3 months to 30 June 2025, whilst CPI Inflation rose to 2.2% in September 2025, an increase from 2% in August 2025. Eurozone interest rates were reduced to 2.15% in June 2025. In the US, GDP grew over the period closing at 3.8% at the end of June 2025, whilst inflation increased over the period. The US interest rate was reduced by 0.25% to the range of 4.00% to 4.25% in September 2025. 3.5 The Public Works Loan Board’s (PWLB) certainty fixed interest rates for the 6 months to 30 September 2025, which are based on yields on UK gilts, are shown in the graph at Appendix I. As a result of mixed economic data and market instability, borrowing rates showed continuing volatility over the period, and generally rose over the 6-months. Whilst the 1-year rate fell over the period (from 4.82% to 4.56%), all other rates were higher by the end of the 6- month period, particularly for the longer durations, eg the 50 year PWLB rate rose from 5.63% to 6% 3.6 The increased levels of volatility in the financial markets since US tariffs were first announced has continued, as markets react to new announcements and developments, including the delaying of the introduction of some tariffs and the extension of others. In this period, yields in all periods have moved significantly (up and down) on a daily basis, but with a general rising trend over the 6-month period. 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 no new PWLB borrowing was undertaken. However, there was the repayment of one maturing fixed rate maturity PWLB loan of £5 million borrowed at 3.65% for 11 years. In addition, there were also the
Page 3
scheduled instalments made on two PWLB EIP (Equal Instalments of Principal) loans for £5 million and £6.25 million. 4.3 There were also two LOBO loans (Lender option Borrower Option) repaid after the lender gave notice to amend the interest rate on the loans to 6.4% and 6.41% respectively. Consequently, the Council applied its option to repay both loans without penalty. The first loan repaid was for £5 million at 4.50% and the second was for £5 million at 3.93%. 4.4 As a result of the above transactions, the Council’s total long-term debt reduced by £26.25 million from £715.2 million at an average interest rate of 2.91% to £688.95 million at an average interest rate of 2.86% as at 30 September 2025. 4.5 There were eighteen short-term market loans borrowed in the period to manage daily cashflows. This position arose as part of the adopted strategy during periods when PWLB rates were high and allowed the Council to defer longer-term borrowing. Consequently, a total of £81.5million was borrowed for an average of 91 days at an average rate of 4.10%. There was £61.5million of these temporary loans outstanding as at 30 September 2025. 4.6 Common Good and Charitable Fund balances held on fixed deposit with the Loans Fund remained unchanged at £2.711 million over the 6-month period, at an average interest rate of 4.02%. Funds held from associated bodies and organisations increased from £2.753 million to £2.933 million over the period, in line with their own cash flow requirements, whilst the average rate paid on these funds reduced from 3.82% to 3.32% in line with the rates applicable on individual loans depending on the balance held, and which are linked to the prevailing Bank Base Rate. 4.7 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 4.8 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. 4.9 There were 5 fixed rate deposits made in the 6 months to 30 September 2025 (totalling £21.5 million) and at an average interest rate of 4.45% for an average term of 64 days. This was a significant reduction in fixed deposit activity in comparison to the previous 6 months to the end of March. The deposits were undertaken where opportunities arose within cashflow projections, however there were fewer opportunities as a result of the Council’s current borrowing position. The fixed deposits undertaken in the current period will generate interest of £166,796 by their maturity.
Page 4
Investments for Daily Cashflow Requirements 4.10 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 £6.11 million in the previous quarter to £8.94 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 4.72% to 4.24%, 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 £7.7 million in the previous period to £12.075 million in the current period, whilst the average interest rate reduced from 4.73% to 4.24%. • 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 £428,570. 4.11 The total amount of investments outstanding as at 30 September 2025 was £18.546 million compared to £24.117 million at the end of March 2025. The overall average rate of interest on the investments outstanding reduced from 5.50% to 4.15% over this period. This reflects the maturing fixed deposits at higher rates in the previous period and the reduction in base rate over the current period. 4.12 Total income generated on investments undertaken during the period totals £595,366 (£744,900 in the 6 months to 31 March 2025). This measure reflects the total return on the investment activity undertaken in the period and is lower in comparison to the previous quarter as fixed term deposits and interest rates decreased. 4.13 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 30 September 2025, 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 October 2025. 5.3 For the period ending 30 September 2025 the average closing cleared bank balance was £20,731.73 in credit. This reflects the application of the Council’s
Page 5
“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 £55.325 million on 17 September and reduced to £18.546 million by 30 September 2025. The average daily investment balance over the period was £29.589 million, which reduced from an average of £33.154 million in the previous 6 months and from £62.145 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 September 2025, there was only one fixed rate deposit remaining, whilst the instant access balances reflect the minimum requirements to maintain day-to-day liquidity. 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 4.10 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 £1.870 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. These will therefore be kept under review.
Page 6
8 Conclusions 8.1 The Bank of England’s MPC reduced the Bank Base Rate to 4.25% in May 2025 and again to 4.00% in August 2025 due to a period of low inflation and economic growth. However, after expectations for future cuts in the Bank Base Rate were reduced due to increasing inflationary pressures and economic uncertainties, the current view is that the next cut in the Bank Base Rate may come earlier than previously expected. 8.2 Public Works Loans Board (PWLB) borrowing rates continued to be volatile over the period due to inflationary expectations and mixed economic data. Over the period the rates rose and were higher by 30 September 2025, with only the 1-year rate falling. 8.3 There was no new PWLB borrowing in the period, whilst there was the repayment of PWLB loans totalling £16.25 million. There was also two LOBO loans repaid totalling £10 million at an average rate of 4.22%. 8.4 Investment activity in the period consisted of a reduced level of fixed term deposits, whilst instant access and Money Market Funds were used extensively to meet day-to-day cashflow requirements. The total level of investments outstanding reduced. 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 April 2025 to 30 September 2025 Appendix II – Summary of the Treasury Position and Transactions from 1 April to 30 September 2025 Appendix III – Approved Investment Counterparty List Appendix IV – Monitoring of Prudential Indicators – Period ending 30 September 2025