Public sector borrowing likely more expensive in longer term after ‘substantial volatility’
Wrexham Council’s borrowing looks set to be affected by the recent volatility on the money markets, although with some historic lending being at higher rates, the impact could be mitigated to a degree.
With a “Treasury Management Outturn and Actual Prudential Indicators” report presented to the Full Council yesterday afternoon (28 September) a topical question was asked from the Labour Group Leader.
Cllr Dana Davies asked the Finance Officer for a reaction and clarity to recent events in the UK and wider money markets: “There is a lot of uncertainty out there, and us included as well within this room.
“So if you can give us some indication looking forward what impacts we are looking at from a council point of view.
“Because obviously, there’s there’s a lot of uncertainty around fiscal policies and increased interest rates, and as we went into the budget process, I think that information from yourself that insight would be really beneficial to council.”
Chief Officer Richard Weigh replied: ” It is a very volatile position at the moment and if we if we take it in the treasury context, and we look at interest rates, and the rates of government borrowing through guilts, which are the primary driver behind the cost of the council’s borrowing, those have moved quite sharply over a very short period.
“The short answer is it seems likely in the longer term that borrowing across the public sector as a whole will be more expensive than it was and has been in the in the recent past.
“The rates have fluctuated today, some of the long term rates have actually reduced from where they were earlier in the week.
“It is a period of quite substantial volatility.
“For our own position, we have got provision to undertake the borrowing that we need to borrow. That has a bigger impact when the maturity of existing borrowing comes to fruition.
“But, to some extent ironically, the dates that some of those previous loans were taken out were at broadly similar rates to where things are at the moment. So it wouldn’t necessarily be a vast increase in cost to refinance those because they were financed at a higher rate.
“What it does do is remove some of that opportunity for financing in future to cost less than it might have done, but it’s a very dynamic picture and there’ll be a more detailed update of where we are reported to to the next executive board in in October.”
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