Local authority bank deposits decline as MMF investments rise
0Deposits in banks by local authorities in the UK fell sharply during the first quarter of the year, compared to the same period last year.
According to figures released by the DCLG, local government cash held by banks at the end of May stood at £13.9bn, down from £17.2bn a year before.
The sums held in treasury bills also fell from £2.9bn in last year’s first quarter, to £1.5bn this year. Certificates of deposit held with banks accounted for £848m of the total investments, down from £1.4bn. However, investments in money market funds rose from £5.9bn to £7.1bn.
The DCLG’s figures exclude the sums lent between local authorities. But according to a separate document covering 2015/16, that total stood at just under £5bn at the end of last financial year.
Mark Horsfield, director at treasury adviser Arlingclose, said: “From a bail-in perspective we prefer LA to LA lending and suitable covered bonds to unsecured bank deposits and CDs – which are unsecured and exposed to bail-in – particularly for longer dated term investments.
“While I would not say that our advice is solely responsible for the trend move in a lower level of unsecured bank deposits and CDs I can understand it.”
He added that some movement may simply reflect periodic changes in the way different authorities categorise their investments.
But he added: “It comes as no surprise from what we see that there is a movement away from unsecured bank deposits, where the returns continue to fall whilst unsecured investor risk has risen, towards investments, including those with other local authorities, which are exempt from bail in.”
The total amount of investments held by local authorities dropped sharply from £40.2bn to £35.3bn across the year.
However, Paul Turner, local authority dealer at King & Shaxon, said the fall might be down to changes in the payment timetable from central government.
He said: “I think the difference could be attributed mainly to the fact that last year the revenue support grant was front-loaded with 80% being paid in the first quarter, whereas this year it has been evenly spread across the financial year.”
This week’s statistical release also showed longer term borrowing by local authorities slightly up at £88.6bn, compared to £87.1bn at the end of the 2015/16 financial year.
Borrowing from the Public Works Loan Board stood at £65.2bn, up slightly from £64.4bn at the end of last year.
In a separate development at the end of last week, the Debt Management Office announced it had cut its Debt Management Account Deposit Facility rates to 0.15% out to three months and 0.1% for between three and six months.
