Treasury Management Update - Quarter ended 30 June 2025
Argyll and Bute Council · 4 September 2025
Back to Audit and Scrutiny Committee — 4 September 2025 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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ARGYLL AND BUTE COUNCIL AUDIT AND SCRUTINY COMMITTEE FINANCIAL SERVICES 4 SEPTEMBER 2025 TREASURY MANAGEMENT UPDATE – QUARTER ENDED 30 JUNE 2025 1.0 EXECUTIVE SUMMARY 1.1 The Local Government in Scotland Act 2003 requires the council to have regard to the CIPFA Code of Practice on Treasury Management (revised 2021), ‘the Code’. The Code recommends that members be updated on treasury management activities at least quarterly. This report demonstrates best practice in accordance with the Code. 1.2 The report provides an update on the council’s treasury management activity during the quarter 1 April to 30 June 2025 and the overall position as at 30 June 2025. This covers information on: • Economic background • Interest rate forecasts • Borrowing • Investments • Compliance with Treasury and Prudential Limits 1.3 The report concludes that: • The approved Treasury Management Strategy and Annual Investment Strategy 2025-26 continues to be fit for purpose. All borrowing and investment activity during the quarter ended 30 June 2025 has been undertaken in accordance with the approved strategy, and the authority has operated within the approved treasury and prudential limits contained therein; and, • Short-term borrowing and investment activity has been undertaken to manage day to day cashflow requirements. In respect of long-term capital financing requirements, the authority continues to maintain an under-borrowed position. The significant level of internal reserve
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balances has provided an opportunity to defer new external borrowing, whilst also minimising exposure to investment risk. However, new PWLB borrowing of £20m was undertaken during the quarter, to provide an element of certainty in respect of funding the underlying borrowing requirement. 1.4 The Audit and Scrutiny Committee is requested to note and consider the contents of the report and the treasury activity during the period 1 April to 30 June 2025.
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ARGYLL AND BUTE COUNCIL AUDIT AND SCRUTINY COMMITTEE FINANCIAL SERVICES 4 SEPTEMBER 2025 TREASURY MANAGEMENT UPDATE – QUARTER ENDED 30 JUNE 2025 2.0 INTRODUCTION 2.1 The CIPFA (Chartered Institute of Public Finance and Accountancy) Code of Practice for Treasury Management 2021, ‘the Code’ recommends that members be updated on treasury management activities at least quarterly. This report demonstrates best practice in accordance with the Code. 2.2 The report provides an update on the council’s treasury management activity during the quarter 1 April to 30 June 2025 and the overall position as at 30 June 2025. This covers information on: • Economic background • Interest rate forecasts • Borrowing • Investments • Compliance with Treasury and Prudential Limits 3.0 RECOMMENDATIONS 3.1 The Audit and Scrutiny committee is requested to note and consider the contents of the report and the treasury activity during the period 1 April to 30 June 2025. 4.0 DETAIL 4.1 Economic Background 4.1.1 During the quarter, there was a slight contraction in GDP growth, a decrease in wage growth and an easing of CPI inflation to 3.5% in May. There has been an overall increase in gilt yields over the period, which underpin long-term borrowing rates. During May, Bank Rate was cut from 4.50% to 4.25%, held during June, with the Monetary Policy Committee taking the view that a ‘gradual and careful’ approach to rate cuts remains appropriate. A more detailed update
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on the economic position, provided by the council’s treasury advisors, is given within Appendix 1. 4.2 Interest Rate Forecasts 4.2.1 The latest forecast was provided on 10 February and has proved robust over the period since February, setting out a central view that short and long-dated interest rates will start to fall once it is evident that the Bank of England has been successful in squeezing excess inflation out of the economy, despite a backdrop of stubborn inflationary factors. Nonetheless, the longer dated part of the forecast also reflects the increased level of Government borrowing over the term of the current Parliament and the weakness in the public finances, with the Government struggling to deliver on the efficiencies detailed in the October Budget. Note: The PWLB rate forecasts are based on the Certainty Rate (the standard rate minus 20 bps) which has been accessible to most authorities since 1 November 2012. Rate forecasts for 3, 6, 12 month investments are averages - rates offered by individual banks may differ significantly from these averages, reflecting their different needs for borrowing short-term cash at any point in time. 4.2.2 A comparison of current updated forecasts to the forecast position on Bank Rate and PWLB interest rates, included within the Treasury Management Strategy and Annual Investment Strategy 2025-26, is outlined in the table below. Rate Forecast March 2026 March 2027 Previous Current Previous Current Short term borrowing: Bank Rate 3.75% 3.75% 3.50% 3.50% Long term PWLB borrowing: 5 Year 4.50% 4.60% 4.10% 4.30% 10 Year 4.70% 4.90% 4.30% 4.60% 25 Year 5.10% 5.40% 4.70% 5.00% 50 Year 4.90% 5.10% 4.50% 4.70%
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4.2.3 Long-term borrowing rates have not fallen as quickly as previously forecast and remain elevated, largely as a result of continuing inflationary concerns. The longer dated part of the forecast also reflects the increased level of Government borrowing over the term of the current Parliament. 4.3 Borrowing Borrowing Strategy 4.3.1 As set out within the approved strategy, the council is maintaining an under- borrowed position. This means that the capital borrowing need, (the Capital Financing Requirement), has not been fully funded with loan debt, as cash supporting the authority’s reserve balances and cash flow has been used as a temporary measure (internal borrowing). This strategy is prudent while medium and longer dated borrowing rates are expected to fall from their current levels. 4.3.2 Given interest rate forecasts, it was anticipated that any new long-term borrowing undertaken during the financial year would be taken on a relatively short-term basis, with current high long-term interest rates forecast to fall over future years. This is a prudent and cost-effective approach in the current economic climate but requires ongoing monitoring. The capital plan and our use of reserve balances continues to be kept under regular review, and as such, our borrowing strategy will also be regularly reviewed, to achieve optimum value and minimise risk exposure in the long term. However, at this stage, the council’s approved borrowing strategy for 2025-26 remains fit for purpose. Borrowing Activity 4.3.3 PWLB loan principal of £0.840m has been repaid during the quarter ended 30 June 2025. This repayment of principal relates to a 12.5-year PWLB loan (original principal £21m), which was taken on a fixed Equal Instalments of Principal (EIP) basis. All other PWLB loans will be repayable on maturity. 4.3.4 No Maturity PWLB loans have matured during the quarter. Similarly, no other debt repayments or rescheduling has been undertaken. 4.3.5 The authority has one outstanding market or LOBO loan for £5.255m, with an interest rate of 4.75%, maturing 2048, with call dates every 6 months. This loan was not recalled at the 22 June 2025 call date. There is potential for this loan to be recalled before the end of the financial year, at the next call date of 22 December 2025. 4.3.6 New PWLB long-term borrowing of £20m was undertaken during the quarter, to provide an element of certainty in respect of funding the underlying borrowing requirement for capital. With long-term borrowing rates relatively high but forecast to steadily fall over the next few years, new borrowing has been taken on a relatively short-term basis. The new loans taken out during the quarter were as follows: Lender Principal Type Interest Rate Maturity PWLB £20.000m Fixed 4.69% 07/04/2028
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4.3.7 As at 30 June 2025, the council’s external loan debt totalled £148.913m, as summarised in the table below. Debt Amount £000 Annual Average Interest Rate Share of Total Debt Public Works Loans Board 143,357 4.49% 96.26% Market Loans (LOBO) 5,255 4.75% 3.53% Temporary Loans* 321 3.96% 0.21% Total Debt 148,913 4.44% 100.00% *Note: This represents short-term borrowing from various institutions 4.4 Investments Investment Strategy 4.4.1 In accordance with the CIPFA Treasury Management Code of Practice, the council’s approved Annual Investment Strategy sets out the council’s investment priorities as being: • Security of capital • Liquidity • Yield 4.4.2 The authority continues to aim to achieve the optimum return (yield) on its investments, commensurate with proper levels of security and liquidity and within the authority’s risk appetite. The risk appetite of the council is low, prioritising security and liquidity. In the current economic climate, it is considered appropriate to keep investments short-term to cover cash flow needs, but also to seek out value available in longer periods with high credit quality financial institutions, using the Link suggested creditworthiness approach, including a minimum sovereign credit rating and Credit Default Swap (CDS) overlay information. 4.4.3 As shown within the interest rate forecasts given at paragraph 4.2.1, investment rates were forecast to fall during the first quarter of 2025/26, which they did, and expectations are that gradual but continuing reductions will follow over the next two years. Creditworthiness 4.4.4 There have been few changes to credit ratings over the quarter under review. However, officers continue to closely monitor these to ensure that only appropriate counterparties are considered for investment purposes. Investment Counterparty Criteria 4.4.5 The current investment counterparty criteria selection, approved within the Strategy, continues to meet the requirements of the treasury management function. Investment Activity
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4.4.6 The council’s Section 95 Officer confirms that the principles of the investment strategy have been adhered to. During the quarter ended 30 June 2025, all investments have been made in line with the approved limits for specific investment instruments, and in accordance with the creditworthiness approach. 4.4.7 Details of the council’s investments held as at 30 June 2025, totalling £75.143m, are summarised in the table below. Counterparty Maturity Amount £000 Interest Rate Clydesdale Bank Instant Access 343 4.15% Fixed Deposits: ANZ Banking Group 10/07/2025 15,000 4.67% Al Rayan Bank 20/11/2025 5,000 4.40% Money Market Funds: Federated Call Account 12,500 4.31% Insight Liquidity Fund Call Account 10,800 4.31% LGIM Stirling Liquidity fund Call Account 14,800 4.33% Aviva Call Account 15,000 4.32% Royal London Sterling Liquidity Fund Call Account 1,700 4.29% Total 75,143 4.44% 4.4.8 The weighted average rate of return on the above is 4.440%, with an average investment duration of 11 days. This compares to an average benchmark SONIA overnight rate of 4.313% over the quarter, while Bank Rate was lowered during the period from 4.50% to 4.25% in May. 4.5 Compliance with Prudential and Treasury Limits 4.5.1 It is a statutory duty for the council to determine and keep under review the affordable capital expenditure limits. The revised Prudential and Treasury Indicators for 2025-26, as approved by full Council on 27 February 2025, are attached as Appendix 2. During the quarter ended 30 June 2025, the council has operated within the treasury and prudential indicators. The council’s Section 95 Officer confirms that no difficulties are envisaged for the current or future years in complying with these indicators. 5.0 CONCLUSION 5.1 The approved Treasury Management Strategy and Annual Investment Strategy 2025-26 continues to be fit for purpose. All borrowing and investment activity during the quarter ended 30 June 2025 has been undertaken in accordance with the approved strategy, and the authority has operated within the approved treasury and prudential limits contained therein. 5.2 Short-term borrowing and investment activity has been undertaken to manage day to day cashflow requirements. In respect of long-term capital financing
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requirements, the authority continues to maintain an under-borrowed position. The significant level of internal reserve balances has provided an opportunity to defer new external borrowing, whilst also minimising exposure to investment risk. However, new PWLB borrowing of £20m was undertaken during the quarter, to provide an element of certainty in respect of funding the underlying borrowing requirement. 6.0 IMPLICATIONS 6.1 Policy None 6.2 Financial Complies with Annual Treasury Strategy 6.3 Legal None 6.4 HR None 6.5 Customer Service None 6.6 Risk None 6.7 Climate Change None 6.8 Fairer Scotland Duty None 6.9 Equalities - protected characteristics None 6.10 Consumer Duty None 6.11 Island Communities None 6.12 Children’s Rights and Wellbeing None Kirsty Flanagan Section 95 Officer / Executive Director with responsibility for Development and Infrastructure Services Policy Lead Councillor Ross Moreland 8 August 2025 For further information contact: Carolyn Earl, Head of Financial Services carolyn.earl@argyll-bute.gov.uk APPENDICES Appendix 1 Economic Background
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Appendix 2 Interest Rate Forecast Appendix 3 Prudential Indicators Appendix 1 – Economics Update • The first quarter of 2025/26 (1st April to 30th June) saw: - A 0.3% m/m fall in real GDP in April – the first fall since October 2024 - The 3myy rate of average earnings growth excluding bonuses fall from 5.5% to 5.2% in May - Core CPI inflation ease from 3.8% in April to 3.5% in May as temporary Easter-related effects faded - The Bank of England cut interest rates from 4.50% to 4.25% in May, holding them steady in June - The 10-year gilt yield fluctuate between 4.4% and 4.8%, and end the quarter at 4.50% • The 0.3% m/m fall in real GDP in April was the first fall since October 2024 and the largest fall since October 2023. This is a significant shift from the 0.7% q/q rise in Q1 2025, probably as a result of the boosts from net exports and business investment unwinding. The decline in exports was mostly due to a reversal of US tariff front-running with export values to the US falling by 31% m/m after rising 34% in total in the five months to February. April’s GDP figures also showed manufacturing output falling by 0.9% m/m along with the domestic economy showing signs of weakness in April. Despite construction output growing by 0.9% m/m, services output declined by 0.4% m/m, reversing all of March’s 0.4% m/m rise. This weakness in services likely reflects higher labour costs from April’s rise in National Insurance Contributions for employers. May’s GDP may have fallen a bit further as the boosts in Q1 continued to unwind. Overall, GDP in Q2 is likely to have flatlined and the economy will probably be hindered by subdued overseas demand and domestic businesses cutting spending given a rise in costs due to April’s increase in taxes. The Bank of England expects growth in 2025 to be around 0.8%. • Despite the rise in the composite Purchasing Managers Index (PMI) from 50.3 in May to 50.7 in June, it is still below its level in March, prior to the rise in business taxes and Trump’s Liberation Day tariffs. This rise was driven by increases in both the services and manufacturing output balances. Although the services PMI rose from 50.9 to 51.3, that is consistent with non-retail services output growth slowing from 0.5% 3m/3m in April to 0.3% 3m/3m in June. • The sharp 2.7% m/m drop back in retail sales volumes in May adds to other evidence that the burst of economic growth in Q1 is over. The weakness was widespread with sales falling in all seven of the major categories. This decline was partly due to the unwinding of the previous boost from April’s unusually warm and dry weather along with inflationary pressures prompting consumers to cut back. The latter would be a more persistent drag on retail spending. Looking ahead, the rise in the GfK measure of consumer confidence from -20 in May to -18 in June is
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consistent with the annual rate of real retail sales growth accelerating from -1.3% in May to around +0.5%. • While the £17.7bn of public sector borrowing in May was higher than the Office of Budget responsibility (OBR) forecast of £17.1bn, borrowing was £2.9bn below the OBR’s forecast in the first two months of the 2025/26 fiscal year. The current budget deficit was £12.8bn in May, a touch below the OBR’s forecast of £13.0bn. Within that, government spending surprised to the downside. Central government expenditure was £0.5bn lower than the OBR’s forecast in May, leaving it £1.6bn lower in April and May combined. That has been largely driven by debt interest payments, which were £1.1bn below the OBR’s forecast in May. But if the rises in gilt yields since the Spring Statement in March are sustained, the OBR will revise up its forecast for debt interest payments in the years ahead. That of itself would knock £1.0bn off the Chancellor’s £9.9bn of headroom against her fiscal mandate and the subsequent Government U-turns on benefit and welfare spending and higher borrowing costs may mean to maintain her current £9.9bn buffer, Reeves has to raise upwards of £13bn later this year. And with the gilt market sensitive to significant increases in borrowing, all this means substantial tax rises are looking very likely. • The weakening in the jobs market is gathering pace. May’s 109,000 m/m fall in the PAYE measure of employment was the largest decline (barring the pandemic) since the data began and the seventh in as many months. The monthly change was revised lower in five of the previous seven months too, with April’s 33,000 fall revised down to a 55,000 drop. Overall, the payroll measure of employment has now fallen by 276,000 since the announcement of the rise in payroll taxes and the minimum wage in the October Budget. The job vacancies data also portrays a rapidly weakening labour market. The number of job vacancies is now falling a bit faster, dropping from 760,000 in the three months to April to 736,000 in May. Capital Economics’ seasonally adjusted measure of single-month vacancies declined sharply from 763,000 in April to 713,000 in May. • A looser labour market is driving softer wage pressures. The 3myy rate of average earnings growth excluding bonuses fell from 5.5% to 5.2% in May. The rate for the private sector slipped from 5.5% to 5.1%, putting it on track to undershoot the Bank of England’s Q2 forecast of 5.2%. And after rising in April as the 6.7% rise in the minimum wage took effect, the timelier PAYE median earnings measure fell back from 6.2% y/y in April to 5.8% in May. Softer wage growth is feeding through to lower services inflation, pointing to a slowdown from 4.7% in May to around 3.0% by the end of the year. • CPI inflation fell slightly from 3.5% in April to 3.4% in May – close to consensus. The sharp falls in services inflation from 5.4% to 4.7% and in core inflation from 3.8% to 3.5% confirmed that the previous month’s jumps partly reflected an Easter- related blip. Services inflation is expected to continue to fall as wage growth slows, supporting a view that CPI inflation will fall close to 2.0% by the start of 2027. An upside risk, however, in the near term is that higher oil/gas and food prices could trigger another bout of second-round effects on wages and inflation expectations, meaning CPI inflation stays above 3.0% for longer and causes the Bank to shift to an even slower rate cutting path. CPI is expected to peak at 3.8% in September. • The yield on the 10-year gilt moved sideways in the second quarter of 2025. After rising from 4.4% in early April to 4.8% in mid-April following wider global bond
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market volatility stemming from the “Liberation Day” tariff announcement, gilt yields eased back as trade tensions began to de-escalate. By the end of April, the 10- year gilt yield had returned to 4.4%. In May, concerns about stickier inflation and shifting expectations about the path for interest rates led to another rise, with the 10-year gilt yield fluctuating between 4.6% and 4.75% for most of May. Thereafter, as trade tensions continued to ease and markets increasingly began to price in looser monetary policy, the 10-year yield edged lower, and ended Q2 at 4.50%. We expect this trend to continue over the next year. However, it is more difficult to be confident that the longer part of the curve will also see falls in yields, although that is still our central case, as that part of the curve is increasingly held by transient investors, such as foreign investors and hedge funds. Pension funds and insurance companies have more appetite in the short to medium part of the curve nowadays. • The FTSE 100 fell sharply following the “Liberation Day” tariff announcement, dropping by more than 10% in the first week of April - from 8,634 on 1st April to 7,702 on 7th April. However, the de-escalation of the trade war coupled with strong corporate earnings led to a rapid rebound starting in late April. As a result, the FTSE 100 closed Q2 at 8,761, around 2% higher than its value at the end of Q1 and more than 7% above its level at the start of 2025. PWLB maturity Certainty Rates 1st April to 30th June 2025 Heading into the second quarter of 2025/26 markets seem to be comfortable with a central case of gradual monetary policy easing, leading to Bank Rate and gilt yields out to c10 years trending downwards. That part of the curve has broadly acted in line with our forecasts, unchanged since February. However, the Government’s difficulty in convincing the market that it can work within its self-imposed fiscal parameters has meant there has continued to be a somewhat fragile confidence in the medium to longer dated part of the curve. The worst of this sentiment was reflected on 21st May, but as recently as the first week of July has provided a reminder that markets will be quick to sell off if they feel there is anything to prejudice the Chancellor’s stated aim of not raising the headline tax rates nor boost borrowing to greater than has already been reported. The markets have also indicated that they would prefer Chancellor Reeves to stay in post even if the fiscal landscape has deteriorated since the Autumn. The Bank of England has remained cautious in stating that any Bank Rate cuts must be undertaken gradually, and the inflation outlook remains a little opaque with the CPI measure of inflation not expected to peak until September (possibly 3.8%) before falling back towards 2% by the start of 2027. Annual wage increases also remain at 5% y/y, even though the seasonally adjusted job vacancies number has fallen to 712k. Nonetheless, both the 5-year and, albeit to a lesser extent, 10- year PWLB Certainty Rates have trended lower through the quarter. Further out, however, rates have either finished close to their starting point for the quarter, if not a little higher. It remains problematic that historic buyers of longer- dated gilts – pension funds and insurance companies – have preferred the shorter-
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dated maturities of late, whilst there is anecdotal evidence that both foreign investors and hedge funds, who are not natural long-term holders of long-dated debt gilt issuance, as a rule, may be more active in this part of the market currently than has previously been the case. Their presence, arguably, adds even greater volatility to the equation. Consequently, pulling all these factors together, and it is clear that any signs of public finance weakness could put even greater upward pressure on medium and longer dated gilts and, therein, PWLB rates. Additionally, US Treasury yields have also remained elevated because markets are unclear as to the relative impact of President Trump’s tariffs, deportation and tax-cutting policies. Given the effect US markets have globally, this is another contributing factor to the stubbornness of medium to long-dated gilt yields to fall back. MPC meetings: 8th May & 19th June 2025 • There were two Monetary Policy Committee (MPC) meetings this quarter. In May, the Committee cut Bank Rate from 4.50% to 4.25%, while in June policy was left unchanged. In June’s vote, three MPC members (Dhingra, Ramsden and Taylor) voted for an immediate cut to 4.00%, citing loosening labour market conditions. The other six members were more cautious, as they highlighted the need to monitor for “signs of weak demand”, “supply- side constraints” and higher “inflation expectations”, mainly from food prices rising. By repeating the well-used phrase “gradual and careful”, the MPC continued to suggest that rates will be reduced further. 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% PWLB Rates 01.04.25 - 30.06.25 1 Year 5 Year 10 Year 25 Year 50 Year 50 year target %
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• At the start of June, amid escalating tensions between Israel and Iran, oil prices surged to over $75 per barrel. However, following a ceasefire agreement near the end of the month, oil prices eased back to levels prior to the conflict. Given the drop back in energy prices and the relatively muted reaction to fears of a ceasefire violation, along with a large drop in the services PMI output prices balance, our central view is that once inflation begins to trend downwards in the final months of 2025, Bank Rate reductions can begin again from November (pause in August as inflation remains close to its peak), falling to a low of 3.5% in May 2026. However, if the conflict in the Middle East were to result in higher energy prices and/or domestic inflationary pressures grow stronger, there is a risk the Bank of England may skip cutting rates further.
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Appendix 2 – Interest Rate Forecast The Council has appointed MUFG Corporate Markets as its treasury advisors and part of their service is to assist the Council to formulate a view on interest rates. The PWLB rate forecasts below are based on the Certainty Rate (the standard rate minus 20 bps) which has been accessible to most authorities since 1st November 2012. For Housing Revenue Account authorities, the lower Housing Revenue Account (HRA) PWLB rate has also been available since 15 June 2023 (standard rate minus 60 bps) but is available for HRA borrowing only. The latest forecast was provided on 10th February: • Money market yield forecasts are based on expected average earnings by local authorities for 3 to 12 months. • The MUFG Corporate Markets forecast for average earnings are averages i.e., rates offered by individual banks may differ significantly from these averages, reflecting their different needs for borrowing short-term cash at any one point in time. The forecast has proved robust over the period since February, setting out a central view that short and long-dated interest rates will start to fall once it is evident that the Bank of England has been successful in squeezing excess inflation out of the economy, despite a backdrop of stubborn inflationary factors. Nonetheless, the longer dated part of the forecast also reflects the increased level of Government borrowing over the term of the current Parliament and the weakness in the public finances, with the Government struggling to deliver on the efficiencies detailed in the 30th of October Budget. Moreover, there is still on-going debate as to when, and if, the Government’s policies will lead to a material uptick in growth given their reliance on the logistics of fast- tracking planning permissions, identifying sufficient skilled labour to undertake a resurgence in building, and an increase in the employee participation rate within the economy. Overall, our central view is that monetary policy is sufficiently tight at present to cater for some further moderate loosening, the extent of which, however, will continue to be data dependent. We forecast the next reduction in Bank Rate to be made in November and for a pattern to evolve whereby rate cuts are made quarterly and in keeping with the release of the Bank’s Quarterly Monetary Policy Reports (February, May, August and November). Any movement below a 4% Bank Rate will, nonetheless, be very much dependent on inflation data releases in the coming months. MUFG Corporate Markets Interest Rate View 10.02.25 Mar-25 Jun-25 Sep-25 Dec-25 Mar-26 Jun-26 Sep-26 Dec-26 Mar-27 Jun-27 Sep-27 Dec-27 Mar-28 BANK RATE 4.50 4.25 4.25 4.00 3.75 3.75 3.75 3.50 3.50 3.50 3.50 3.50 3.50 3 month ave earnings 4.50 4.30 4.30 4.00 3.80 3.80 3.50 3.50 3.50 3.50 3.50 3.50 3.50 6 month ave earnings 4.40 4.20 4.20 3.90 3.70 3.70 3.50 3.50 3.50 3.50 3.50 3.50 3.50 12 month ave earnings 4.40 4.20 4.20 3.90 3.70 3.70 3.50 3.50 3.50 3.50 3.50 3.50 3.60 5 yr PWLB 5.00 4.90 4.80 4.70 4.60 4.50 4.40 4.40 4.30 4.20 4.20 4.10 4.00 10 yr PWLB 5.30 5.20 5.10 5.00 4.90 4.80 4.70 4.70 4.60 4.50 4.50 4.40 4.40 25 yr PWLB 5.80 5.70 5.60 5.50 5.40 5.30 5.20 5.10 5.00 5.00 4.90 4.90 4.80 50 yr PWLB 5.50 5.40 5.30 5.20 5.10 5.00 4.90 4.80 4.70 4.70 4.60 4.60 4.50
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International factors could also impact the prospect for longer dated gilt yield falls. President Trump’s “big, beautiful bill” has successfully made its way through the House of Representatives in July and given that it will signal a continued large budget deficit position in the US finances, any uptick in Treasury yields will likely impact other developed economies markets too. There will also be a keen focus on whether US- driven tariff policies result in upward pressures on inflation.
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Appendix 3 2025-26 Prudential and Treasury Indicators as at Quarter 1 2025-26 Original Forecast Estimate As at Qtr 1 Prudential Indicators for prudence 1) Capital expenditure £m £m Gross capital expenditure 71 75 Less Financing (26) (26) Net financing need (in-year borrowing requirement) 45 49 2) Capital financing requirement (CFR) £m £m Total CFR at 1 April 360 354 Total CFR at 31 March 394 392 Movement in CFR 34 38 Represented by: Net in-year borrowing requirement (above) 45 49 Less: principal repayments and other financing movements (11) (11) Total 34 38 3) Authorised limits £m £m Authorised limit for borrowing 293 Within limit Authorised limit for long-term liabilities 101 Within limit Authorised limit for external debt 394 Within limit 4) Operational boundaries £m £m Operational boundary for borrowing 298 Within limit Operational boundary for long-term liabilities 104 Within limit Operational boundary for external debt 402 Within limit 5) Gross debt and the CFR £m £m Gross debt at 31 March 321 301 Total CFR at 31 March 394 392 Gross debt less the CFR at 31 March (73) (91) Prudential indicators for affordability % % 6) Ratio of financing costs to net revenue stream 4.9 No update
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Forecast As at Qtr 1 Treasury indicators – borrowing limits 7) Maturity structure of fixed rate borrowing Upper Lower Upper Lower Under 12 months 30% 0% Within limit 12 months and within 24 months 30% 0% Within limit 24 months and within 5 years 30% 0% Within limit 5 years and within 10 years 40% 0% Within limit 10 years and above 100% 0% Within Limit 8) Limits on fixed rate and variable rate borrowing Upper Lower Upper Lower Fixed rate 100% 0% Within limit Variable rate 60% 0% Within limit Treasury indicator - investment 9) Upper limit on principal sums invested for over 365 days £m £m Upper limit 20 Within limit Notes to Prudential and Treasury Indicators The authority’s capital expenditure plans are the key driver of treasury management activity. The output of the capital expenditure plans is reflected in the prudential indicators, which are designed to assist members’ overview and confirm capital expenditure plans. Prudential Indicators – Prudence Indicators 1-5 above cover the overall capital and control of borrowing prudential indicators. Affordability Prudential Indicators Within the overall framework, prudential indicators are required to assess the affordability of the capital investment plans. These provide an indication of the impact of the capital investment plans on the authority’s overall finances. Ratio of Financing Costs to Net Revenue Stream This indicator identifies the trend in the cost of capital (borrowing and other long term obligation costs), against the net revenue stream. The estimates of financing costs include current commitments and the proposals in the 2025-26 Budget Pack. Maturity Structure of Borrowing These gross limits are set to reduce the authority’s exposure to large, fixed rate sums falling due for refinancing, and are required for upper and lower limits.
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IFRS 16 Leases It was not possible to account for leases on an IFRS16 compliant basis within the pre- audit annual accounts for the year ending 31 March 2025. Changes will require to be made during the audit process, which are not yet quantifiable but will impact both the CFR and Debt positions. It is anticipated that Prudential and Treasury Indicators and Limits will be reviewed and updated, as may be required, as part of the Mid-year Review report.