Agenda item

Report of the Director of Finance, People and Estates (Treasurer) (RC/22/12) attached.

NB.  Adam Burleton, representing Link Asset Services - the Authority’s treasury management adviser – was present for this item of business.

The Committee received for information a report of the Director of Finance, People & Estates (Treasurer) (RC/22/12) that set out the Authority’s performance relating to the first quarter of 2022-23 (to June 2022) in accordance with the Treasury Management in Public Service Code of Practice (published by the Chartered Institute of Public Finance and Accountancy {CIPFA}) and the CIPFA Prudential Code.  The report set out how this Authority was demonstrating best practice in accordance with these Codes.

During consideration of this item, the following points were noted:

·      There was economic volatility currently, the main driver of which was inflation driven largely by the position in Ukraine;

·      The Bank of England was employing monetary policy in a bid to control inflation which was 10.1% currently and forecast to peak at around 14-18% later in 2023 before this dropped down again;

·      UK bank base rate had been increased from 1.25% to 1.75% in August 2022 with quantitative easing being phased out gradually.  Further interest rate rises were forecast and expected to peak now at around 2.75% in March 2024;

·      The squeeze on income as a result of inflation was likely to slow the economy further into recession in 2023 for four quarters with an associated rise in unemployment (possibly to 6%);

·      Interest rates were not forecast to rise in the next two years with no change in monetary policy;

·      the annual treasury management strategy had continued on a prudent approach, underpinned by investment priorities based on security of capital, liquidity and yield.  Investment income of £0.015m (0.73%) had been generated in quarter 1 of 2022-23, an underperformance against the new 3 month SONIA (Sterling Overnight Index) benchmark of 0.90% by 0.17bph.  SONIA had replaced LIBID at the end of December 2022 and tended to trade at a higher average so it was anticipated that investment returns should improve and outperform the investment target at the year end;

·      None of the Prudential Indicators (affordability limits) had been breached in quarter 1 with external borrowing at 30 June 2022 being £24.757m, forecast to reduce to £24.264m by the end of the financial year with no new borrowing undertaken.

It was noted that there would be opportunities forthcoming to review the Authority’s early repayment of external borrowing as the rates for the Public Works Loans Board (PWLB) were improving.

Reference was made to the potential for much higher (than budgeted) public sector pay increases as a result of the peak in inflation.  The Treasurer reported that the Government had been requested to provide additional funding to cover the anticipated increased pay awards but no response had been forthcoming as yet.

The Committee enquired about the potential for increased interest rates for the Authority’s investments as set out within Appendix A of report AGC/22/12).  The Treasurer advised that the Authority had seen an improvement in the interest rates offered already in quarter 2 of 2022-23 which would be reflected within the next report to this Committee.

The Committee welcomed the actions being taken to mitigate against downturn in economic performance being experienced currently.