PWLB borrowing plummets in wake of rate increase

The rate of Public Works Loan Board borrowing fell to its lowest level for more than a year immediately after the Treasury hiked the loan rate last month.

After councils dipped into the facility for £2.0bn in August and £1.6bn in September, October’s total dropped to just £469.3m – the lowest since September last year (£348.8m).

The government shocked the sector on 9 October when it announced it was adding a whole percentage point to new loans taken out through the PWLB.

The October figures appear to show that the Treasury has already met its stated aim of slowing the substantial increase in local authority PWLB borrowing which had resulted from the summer’s drop in interest rates.

David Blake, strategic director at treasury adviser Arlingclose, said: “There were definitely a number of councils which had been ready to go with loans but pulled out to think over their options after the rise.”

The PWLB monthly borrowing figures show that 38 loans totalling £273.8m were made to authorities between the start of the month and the rate rise.

This equates to an average of more than £27m lent per day.

However, after the rise was announced, just £195.6m was borrowed via 20 loans during the remaining two-thirds of the month.

This equates to a rate of £9.3m per day – a third of the rate seen at the start of the month.

Blake said that there had been record lending and borrowing directly between local authorities during the month on Arlingclose’s iDealTrade platform.

But he warned against reading too much into one month’s figures, saying that the looming spectre of Brexit is influencing borrowing behaviour.

However, the PWLB monthly report shows that after the rate rise, there was no borrowing activity recorded until 14 October, when Trafford Council took £50m and Warrington took £5m.

The same day, City of Edinburgh Council borrowing £110m over 33.5 years at a rate of 2.69%.

The same loan would have cost the authority £1.1m less per year in interest payments if it had been taken a week earlier.

From 15 October until the end of the month, another 15 loans were made by the PWLB – 13 of which were made to parish councils.

Bradford City Council (£4.5m) and Warrington Borough Council (£20m) were the only district or higher level authorities to borrow during the second half of the month.

Last month, Room151 reported that the PWLB rate rise will add £18.9m to the cost of servicing Manchester City Council’s planned borrowing for capital projects, reducing its future borrowing capacity.

In addition, a  Room 151 survey found that almost nine in ten councils are planning to push ahead with planned capital projects despite the rate rise – with more than half set to seek funding from alternative sources.