• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Brexit vote prompts huge spike in PWLB borrowing

0
  • by Colin Marrs
  • in Treasury
  • — 7 Jul, 2016
Photo: © European Union 2016 - Source : EPAPimages.

Photo: © European Union 2016 – Source : EPAPimages.

Many local authorities are continuing to increase borrowing through the Public Works Loan Board in the wake of the Brexit vote as the lender revealed a 1,600% jump in loans issued in June.

PWLB figures show that it lent £1.326bn to councils in June – up from May’s total of £74.2m – with councils gambling on a Remain vote and a potential increase in interest rates.

However, PWLB borrowing rates have fallen further since the EU referendum following a reduction in gilt yields caused by “flight to safety” investment.

Bridget Uku, group manager of treasury and investments at London Borough of Ealing, told Room151: “We are locking in some low interest rates by deferring some of our internal borrowing.

“This helps us reduce the risk of us running down our reserves and being forced to borrow at a higher rate when they are exhausted.

“Now PWLB rates are so low, it would be ridiculous not to take advantage of that.”

More than £1bn of the June figure was borrowed ahead of the EU referendum result, with the weighted average life of borrowing over the month coming in at 34.5 years.

On Wednesday, the standard PWLB 50-year maturity rate dropped to 2.31%, meaning councils could borrow over the term at the discounted certainty rate of 2.11%. In June, the figure for the certainty rate over 50 years was nearer 2.75%.

This drop may leave councils who borrowed from the PWLB last month – mostly at long maturities – kicking themselves for gambling on Remain.

But it also presents new opportunities for councils wishing to take out longer term loans.

Bhupinder Chana, principal finance officer at Leeds City Council, said: “We are looking to lock borrowing in at lower rates for between 40 and 50 years. It is costing us a little more against short-term borrowing but we expect the long-term benefits to outweigh this.”

The fall in bond yields is not all good news, however. David Smith, director of resources at Kirklees Council, warned: “Whilst this might herald cheaper borrowing, given the volatility in the commercial property market a number of regeneration schemes could need a further stimulus to get them away.

“Falling investment yields might also influence the triennial actuarial review of pension fund contributions putting pressure on already strained revenue budgets.”

Mark Horsfield, director at treasury adviser Arlingclose, warned that councils could be in danger of taking on too much long-term debt, although he said that he could “understand, to some extent, the lure of the borrowing rates that are historically low in absolute terms supported by a specific borrowing requirement”.

He said: “Like many, Arlingclose did not expect the Leave vote to succeed but, if it did, we viewed interest rates were more likely to fall further in response to the increased economic uncertainty that such an outcome would deliver.

“Conversely, we did not believe that a vote to Remain would drive interest rates and expectations higher. For all intents and purposes we viewed that outcome as being business as usual.”

Arlingclose has revised down its economic forecast and interest rate outlook in expectation of an easing of policy by the Bank of England’s Monetary Policy Committee.

He said: “We believe the MPC will view any increase in inflation as temporary and will not, therefore, sanction higher official interest rates as a policy response. The much- lower-for-much-longer interest rate outlook remains a key pillar upon which our treasury management advice is framed.”

Steve Thompson, director of resources at Blackpool Council, said that he and his team would now be looking at any opportunities to restructure the authority’s existing debt in the wake of the post-Brexit rates environment.

He said: “We will be looking at each loan individually, probably to replace them on a like-for-like basis but we could look at extending the lengths as there is good value at the long end.”

Earlier this week, the PWLB started setting negative interest rates for the early repayment of fixed rate loans, a move understood to be a first in its 200-year history.

David Green, client director at Arlingclose said: “It has been commonplace for the PWLB to charge a premium on top of the outstanding principal for local authorities to repay loans early. But for some loans they are now charging a premium on top of all the outstanding principal plus scheduled interest payments.”

Get the Room151 Newsletter

Share

You may also like...

  • Q&A with the Co-op: LA banking, Vickers & PFI Q&A with the Co-op: LA banking, Vickers & PFI 31 Jan, 2012
  • Covered bonds take root in UK treasury portfolios Covered bonds take root in UK treasury portfolios 8 May, 2014
  • €100bn of MMF assets moves out of EU peripherals €100bn of MMF assets moves out of EU peripherals 14 Nov, 2012
  • Interest rate rises will demand tough choices of treasurers Interest rate rises will demand tough choices of treasurers 13 Feb, 2014

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 1 day ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 1 day ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 2 days ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 2 days ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 2 days ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 3 days ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 3 days ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 3 days ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 4 days ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 4 days ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 4 days ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 4 weeks ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

    Room151 1 month ago

    Room151’s top stories from a momentous year: 2020 was the year in which local government grappled with Covid-19, funding strains, controversy over borrowing rules and the threat of financial collapse. It has been an exhausting and historic[...] dlvr.it/RnlpZg pic.twitter.com/g3myNyox6J

    Room151 1 month ago

    Tracy Bingham: 2020, a year best forgotten but also one of learning: Many will rush to erase 2020 from their memories but, writes Tracy Bingham, there were also many lessons about finance teams, strategic planning and leadership. 2020: A year we’d… dlvr.it/RnlpY2 pic.twitter.com/m7G1krrtCu

    Room151 1 month ago

    Settlement must address ‘precarious’ local government finances: Dan Bates crosses his fingers for “no nasty surprises” in this week’s funding settlement but argues the “bigger prize” is post-Covid financial certainty. Thursday (17 December) should be the… dlvr.it/Rnj9dG pic.twitter.com/KLKjjuBqJE

    Room151 1 month ago

    PWLB consultation: Big change on the way but there are ‘grey areas’ and opportunities: The consultation on PWLB borrowing has concluded creating a new landscape for funding property acquisition. Our experts look at the implications. Tracie Langley The… dlvr.it/RndRvJ pic.twitter.com/KEqXEBmEfq

    Room151 1 month ago

    2021: Better income outcomes?: Sponsored article: Investors should be mindful of structural challenges posed to income generation as a result of rapid thematic change. Jon Bell looks at the prospects for the coming year.[...] dlvr.it/RndRsw pic.twitter.com/TxVk8aXkMq

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story London CIV gathers £2.3bn in assets but warns of compromise over investment strategy
  • Next story News round-up: Business rates redistribution and appeals, council spending and EU funding

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK