Elected Member Briefing - Treasury Activity and Compliance to 30 June 2024

About this Briefing Note

Report by: Scott Walker, Strategic Lead - Finance and Business Support

Date: 25 July 2024

Subject: Treasury Activity and Compliance to 30 June 2024

Responsible Officer: John Jennings - Senior Accountant

Details

Purpose

To update Members on the Treasury Activity and Compliance for the quarter ending 30 June 2024. 

Briefing Information

Economic Background

The Bank of England's Monetary Policy Committee (MPC) kept the UK Bank Base Rate at 5.25%. UK inflation fell from 3.2% in March 2024 to 2.0% in May 2024, which is the Bank of England's target, and the lowest since October 2021. A contributing factor to the reduction in inflation was the cost of food and lower energy prices in comparison to last year.  However, there still remained inflationary pressures in some areas of the UK economy such as the Service Sector and in wage growth. Therefore, the MPC adopted a cautious approach and are waiting for evidence that these pressures were also subsiding, however reductions in the base rate are anticipated to start later this year. GDP growth increased to 0.7% in the 3 months to 31 March 2024. This was slightly higher than forecast and is the strongest expansion in two years. The UK economy continued to grow slightly faster than forecast in the following quarter.

Internationally, Eurozone GDP growth was 0.30% in the quarter ending 31st March 2024, whilst CPI Inflation fell, with a reduction in the interest rate to 4.25% in the quarter. In the US, GDP increased and inflation decreased over the quarter. The US interest rate was unchanged, and remained in the range of 5.25% to 5.50%.

The Public Works Loan Board's (PWLB) certainty fixed interest rates are based on yields on UK gilts. There was continued volatility over the quarter, with all borrowing rates increasing by the end of the quarter.

Treasury Activity

During the quarter there was no new long-term PWLB borrowing or repayments. Therefore, the Council's total long-term debt remained unchanged at £628.2 million with an average rate of 2.64%. There was one short-term market loan borrowed in the quarter to manage cashflow, with £5 million borrowed for 25 days at 5.25% on the 17 May 2024.

Common Good and Charitable Fund balances held on fixed deposit with the Loans Fund were unchanged at £4.419 million, with the average interest rate reducing slightly from 4.81% to 4.80% on renewal of one of the loans during the quarter. Funds held from associated bodies and organisations increased from £2.248 million in the previous quarter to £3.104 million, in line with their own cash flow requirements, whilst the average rate paid on these funds increased from 4.58% to 4.66% as some of the funds held moved to a higher interest rate banding. 
        
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

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. 

There were 12 fixed rate deposits made in the quarter (totalling £58.5 million) at an average interest rate of 5.35% and for an average term of 57 days. In comparison to the previous quarters, fixed deposit activity increased in duration due to the Councils cashflow being more positive at the start of the new financial year, however the average remains less than 2 months. Interest rates reduced in the current quarter from the elevated levels in the local authority lending market in March, and also reflecting current interest rate projections. The fixed deposits undertaken in the quarter will generate £486,349 in interest at their maturity, an increase from £278,696 in the previous period (6-months) as a result of the longer durations.

Investments for Daily Cashflow Requirements

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 £7.5 million from £6.9 million in the previous six monthly report. 
• The average interest rate achieved on these accounts over the 6 months decreased from 5.32% to 5.25%.
• Money Market Funds, which operate on instant access terms, were used extensively over the quarter. The average amount invested increased from £9.4 million in the previous 6 monthly report to £10.8 million, whilst the average interest rate decreased from 5.34% to 5.25%.
• The increase in activity on these accounts reflected the need to keep an increased level of funds for more immediate cashflow purposes over the quarter.
• A smaller amount (£258,000 on average) was invested via the Council's daily "Sweep" and daily access facilities, which can be accessed where required.
• Interest generated on all these investments over the quarter amounted to £223,028.

The total amount of investments outstanding at 30 June 2024 was £53.676 million compared to £65.533million at the end of the previous quarter. The overall average rate of interest on the investments outstanding also decreased from 6.48% to 5.48% at the end of the current quarter.

Total income generated on investments undertaken during the quarter will total £709,378 at maturity (£670,472 in the 6-months to 31 March 2024). This measure reflects the total return on the investment activity undertaken in each period and has increased in the current quarter as the deposits were for a longer duration.

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

Compliance

For the quarter ending 30 June 2024, 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).
    
For the quarter ending 30 June 2024 the average closing cleared bank balance was £22,756.91 in credit. This is within the target of less than £50,000 credit and reflects the proactive Treasury Management and cashflow monitoring.