Consideration was given to a verbal update
from the Interim Treasury and Investment Manager on the Q3 2022/23
Treasury position and the economy.
The verbal update had been requested by
Members at the 17 November 2022 Governance and Audit Committee
meeting as a result of:
- Market volatility in the financial
markets following the fiscal event on 23 September 2022; and
- The Q3 treasury update was not due
to be brought to the Governance and Audit Committee until March
2023.
Regarding the economic situation:
- Economic activity had lost momentum
as households increased their savings;
- Gross Domestic Product rose by 0.5
per cent in October 2022 which was considered to be due to the
reversal of bank holiday effects and a 0.1 per cent rise in
November 2022;
- inflation update included:
- Consumer Price Index inflation fell
to 10.7 per cent in November 2022 after peaking at 11.1 percent in
October 2022;
- goods price inflation was considered
to have peaked;
- energy price inflation was expected
to fall sharply in 2023; and
- global goods supply inflation was
expected to fall as global supply shortages were fading.
- an upward pressure on wage growth
prevailed but this was expected to slow when inflation fell. If
strike action was successful in achieving large pay increases, wage
growth could remain stronger for a longer period.
Regarding interest rates:
- the Bank of England Base Rate had
risen by 1.25 per cent to 3.50 per cent during Quarter 3. Markets
were expecting rates to peak at around 4.5 per cent in June
2023;
- the rise in interest rates had
broadly followed market expectations. Long term investment rates
had stabilised over the last quarter and shorter term rates had
increased in line with base rate rises.
Quarter 3 Treasury update:
- The Council’s investment
priorities were confirmed as Security of Capital, Liquidity and
finally Yield, in that order.
- Investment balances stood at
£52.8million in December 2022 which was marginally higher
than the £52.5million in September 2022;
- The cumulative rate achieved on
treasury investment had increased from 1.126 per cent to 1.807 per
cent, compared with the benchmark of 2.284 per cent. It was normal
for the rate achieved to lag the benchmark in a rapidly rising
interest rate environment. Inclusion of the Welland Home loans increased the cumulative rate
achieved to 1.927 per cent;
- Interest earned as at 31 December
2022 was £767,000 which was £545,000 above the profiled
budget;
- The estimated outturn for investment
income currently stood at £1.2million which was approximately
£900,000 above budget;
- No new borrowing had been undertaken
and interest costs would match the estimate of
£2,347,469;
- Regarding Capital expenditure;
- the General Fund revised budget for
the year was £12.8million and the actual expenditure as at
Quarter 3 was just under £10million; and
- the HRA revised budget for the year
was £15.3million and the actual expenditure as at Quarter 3
was just under £5.3million.
The update was given with the caveat that it
related to a set point in time. The final report to Council may
factor in the receipt of grants received and any capital spend in
the interim period.
AGREED:
That the update be noted by the Governance and
Audit Committee