Public sector borrowing likely to be more expensive in longer term after ‘substantial volatility’ > News

Job : Thu Sep 29, 2022

Wrexham Council borrowing is expected to be affected by the recent volatility in the money markets, although with some historical loans at higher rates the impact may be mitigated to some degree.

With a report on cash management results and actual prudential indicators presented to the full Council yesterday afternoon (28 September), a topical question was posed by the leader of the Labor group.

Cllr Dana Davies asked the Head of Finance for a reaction and clarification on recent events in the UK and the wider money markets: “There is a lot of uncertainty there, and we are also included in this Hall.

“So if you can give us some guidance on the impacts that we are looking at from a board perspective.

“Because obviously there’s a lot of uncertainty around fiscal policies and raising interest rates, and as we go into the budget process, I think information from you would be really beneficial to the board.”

Chief Officer Richard Weigh replied: ‘It’s a very volatile position at the moment and if we take it in the context of the Treasury, and we look at interest rates and government borrowing rates by the guilt biases, which are the main driver behind the council’s cost of borrowing, these have evolved a lot in a very short period of time.

“The short answer is that it seems likely that in the longer term borrowing across the public sector will be more expensive than it was and has been in the recent past.

“Rates fluctuated today, some of the long-term rates were actually down from where they were earlier in the week.

“It’s a period of fairly significant volatility.

“For our own position, we have arrangements to undertake the borrowings that we require. This has a greater impact when the maturity of existing borrowings materializes.

“But, to some extent, ironically, the dates on which some of these previous loans were taken out were at broadly similar rates to the current situation. So there wouldn’t necessarily be a big increase in cost to refinance them because they were financed at a higher rate.

“What he’s doing is taking away some of that funding opportunity going forward to cost less than he could have, but it’s a very dynamic picture and there’s going to be a bet more detailed update of where we are reported to the next board meeting in October.

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