Agenda item

Impact of Financial Market Fluctuations on the Council's Financial position

At its meeting on 17 November 2022, Members requested a short Treasury verbal update come forward to the 19 January 2023 meeting which summarised the recent changes encountered within the financial markets and the subsequent effects on the Council’s situation.  The Interim Treasury and Investment Manager (PSPSL) will be in attendance to provide the Committee with a verbal update on the situation.




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.




That the update be noted by the Governance and Audit Committee