Elected Member Briefing Note - Treasury Compliance Report

About this Briefing Note

Report by: Scott Walker - Chief Finance Officer

Date: 2 February 2026

Details

Purpose

To update Members on the Treasury Activity and Compliance for the quarter ending 31 December 2025.

Briefing Information

• Section 3: Economic Background
• Section 4: Treasury Activity
• Section 5: Compliance

 Economic Background

3.1 The Bank of England's Monetary Policy Committee (MPC) reduced the UK Bank Base Rate from at 4.00% to 3.75% at its meeting on 18 December 2025 due to lower inflation and slowing economic growth. UK inflation reduced to 3.2% in November, compared to 3.6% in October and was the lowest in 8 months. The main contributing factors to the fall in inflation was the cost of food and non-alcolic beverages. GDP growth was 0.1% in the three months to September 2025. Whilst Inflation for December 2025 rose to 3.4%, it is anticipated that inflation will continue to fall in 2026, with further Bank Base rate cuts forecast.

3.2      Internationally, Eurozone GDP growth was 0.30% in the quarter ending 30 September 2025, whilst CPI Inflation was 1.9% in December 2025. In the US, inflation remained at 2.7% in December 2025 whilst GDP growth increased to 4.3% in the quarter ending 30^th September 2025. The US interest rate was reduced in December 2025 to the range of 3.50% to 3.75%.

3.3      The Public Works Loan Board's (PWLB) certainty fixed interest rates for the quarter, which are based on UK gilt yields, are shown in the graph at Appendix I. There was a reduction in all rates over the quarter of between 0.17% to 0.30% due to falling inflation and the expectation of future cuts in the Bank Base Rate, witht eh larger reductisons being in the longer-term rates. However, there remained some volatility in the financial markets over teh quarter as they reacted tot he prevailing economic and political developments. 

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 quarter £28 million of PWLB loans were prematurely repaid on 17 November 2025. This followed a period of rising interest rates, with the repayment of 6 PWLB fixed Maturity loans 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. The repayment of these loans increased the Council's borrowing requirement for the year.

4.3      In November, £30 million of new PWLB borrowing was undertaken with 3 new fixed PWLB loans of £10 million each. These loans were all borrowed using the PWLB's HRA rate, and on the following terms:

• £10 Million fixed maturity loan for 2 years at 4.07%,
• £10 Million fixed maturity loan for 3 years at 4.11%,
• £10 Million fixed EIP (Equal Instalments of Principal) at 4.21% for 8 years.

4.4     In addition to the discount received from the PWLB, the above movements in the PWLB portfolio will generate savings in interest of £110,000 in the first year, reducing to £107,000 the following year and £61,000 in the subsequent year, and are broadly cost-neutral in future years. As a result of these movements, the Council's total long-term debt increased from £688.950 million on 30 September 2025 at an average rate of 2.86% to £690.950 million with an average rate of 2.80% on 31 December 2025.

4.5      As part of the strategy to defer longer-term PWLB borrowing whilst rates were still relatively high, there were 16 short-term market loans totalling £104 million borrowed in the quarter to manage the growing daily cashflow deficits. These loans were for an average of 61 days at an average rate of 4.07%. This strategy has allowed the Council to defer much of its longer-term borrowing requirements to when it was expected rates would be more favourable. At the end of the quarter there was £85.5 million short-term borrowing outstanding.

4.6      As most of these short-term market loans are to be repaid during the final quarter of the financial year, the amount of new longer-term borrowing to be undertaken in the final quarter of the financial year has increased significantly, with borrowing of £140 million required in the 3 months to March 2026. This coincides with the period of lowest longer-term rates for the year.

4.7      Common Good and Charitable Fund balances held on fixed deposit with the Loans Fund reduced from £2.710 million for the quarter to 30 September 2025 to £2.686 millionat the end of the current quarter, with the average interest rate remaining unchanged at 4.02%. Funds held from associated bodies and organisations reduced from £2.933 million at the end of the previous quarter to £2.687million, in line with their own cash flow requirements, whilst the average rate paid on these funds reduced from 3.32% to 3.08% reflecting the reduction in base rate in the quarter.

4.8      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

4.9        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. 

4.10    However, there were no fixed rate deposits made in the quarter. This was in comparison to the previous 6-month period (5 deposits totalling £21.5 million), with fixed deposit activity ceasing due to the Council's cashflow and the strategy of deferring long-term borrowing. Accordingly, there was no interested generated in the quarter from fixed deposits (£166,796 in the previous 6-month period).

Investments for Daily Cashflow Requirements

4.11    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 quarter can be summarised as follows:

• The daily average amount of such funds increased to £10.401 million from £8.939 million in the previous six-monthly report.
• The average interest rate achieved on these accounts over the 6 months reduced from 4.24% to 4.04%.
• Money Market Funds, which operate on instant access terms, were used extensively over the quarter. The average amount invested increased from £12.075 million in the previous 6 monthly report to £12.473 million, whilst the average interest rate reduced from 4.24% to 4.05%.
• The average amount invested via the Council's daily "Sweep" and other daily access facilities was £440,849, which was higher over the Christmas closedown period as funds could only be invested in the Sweep account.
• Interest generated was £240,424 on Money Market Funds activity in the quarter and £1,035 on the other daily access facilities activity.
• The increase in activity on the Money Market Funds reflected the need to keep an increased level of the available funds for more immediate cashflow purposes over the quarter.

4.12    The total amount of investments outstanding at 31 December was £15.730 million compared to £18.546 million at the end of the previous quarter. The overall average rate of interest on the investments outstanding reduced from 4.15% to 3.26% at the end of the current quarter. This reduction reflects the last fixed deposit from the previous 6-month period maturing in the current quarter as well as reduced investment rates following the reduction in the bank Base Rate.

4.13    Total income generated on investments undertaken during the quarter totals £241,460 (£595,366 in the 6-months to 30 September 2025). This measure reflects the total return on the investment activity undertaken in each period and has significantly reduced in the current quarter as a result no fixed deposits being undertaken and lower interest rates.

4.14     All of the above investment activities are consistent with the Council's current investment strategy and cashflow requirements.

5  Compliance  

5.1        For the quarter ending 31 December 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 20 January 2026.  

5.3        For the quarter ending 31 December 2025 the average closing cleared bank balance was £14,640.16 in credit. This is within the target of less than £50,000 credit and reflects the proactive Treasury Management and cashflow monitoring.