Council borrowings set to top £500m by March

Financial experts at Telford & Wrekin Council have set out what  they think will happen with the economy and interest rates over the next year.

The council uses forecasts to inform millions of pounds of investments.

Mortgage payers and savers in the community also keep an eye on the Bank of England Base Rate which currently sits at 4.25 per cent.

“We forecast the next reduction in Bank Rate to be made in November and for a pattern to evolve whereby rate cuts are made quarterly and in keeping with
the release of the Bank’s Quarterly Monetary Policy Reports,” said a report to the council’s audit committee next week.

“Any movement below a four per cent Bank Rate will, nonetheless, be very much dependent on inflation data releases in the coming months.”

The council is using MUFG Corporate Markets, one of the world’s leading financial groups, as advisors. Part of its service is to assist the council to formulate a view on interest rates.

The council is planning to invest in significant regeneration projects including its property investment programme, building homes through its wholly owned company NuPlace Ltd, and deliver highways infrastructure.

In May, the Bank of England’s rate was cut from 4.50 per cent to 4.25 per cent, while in June rate was left unchanged. There is no meeting of the Monetary Policy Committee this month, and the next one will be in August.

The report makes clear that the council’s central view is that “once inflation begins to trend downwards in the final months of 2025, Bank Rate reductions can begin again from November”.

They forecast that there won’t be a cut in August but rates will fall to a low of 3.5 per cent in May 2026.

“However, if the conflict in the Middle East were to result in higher energy prices and/or domestic inflationary pressures grow stronger, there is a risk the Bank of England may skip cutting rates further,” the report read.

The financial experts also say there is a question mark over the Government’s policies which could have an impact on inflation.

The report read: “The longer dated part of the forecast also reflects the increased level of Government borrowing over the term of the current Parliament and the weakness in the public finances, with the Government struggling to deliver on the efficiencies detailed in the October 30 budget.”

It adds that there is “still ongoing debate as to when, and if, the Government’s policies will lead to a material uptick in growth given their reliance on the logistics of fast-tracking planning permissions, identifying sufficient skilled labour to undertake a resurgence in building, and an increase in the employee participation rate within the economy”.

The council’s current treasury management strategy is to “continue to keep investments as short term, where possible, to reduce the need to borrow thus reducing investment exposure and maximising overall returns to the revenue account”.

“We will review investment opportunities if they arise and also review borrowing opportunities as we progress through the year and look to take advantage of advantageous interest rates where appropriate.”

Telford & Wrekin Council has an operational limit on its external debts of £645 million and an authorised limit for its maximum level of borrowing at £665m.

On May 31 this year the council held external debts of £426.7m, with the projected external debt at March 31, 2026, £501.4m. Both are within the operational boundary and authorisation limit.

Council officials added that with the forecast for interest rates set to reduce through the second half of 2025/26, and continue to reduce in 2026/27, the Borrowing Strategy for 2025/26 is to use “internal resources where available or to borrow through the use of short-term loans, up to one year and take longer term loans if appropriate”.

“The Treasury Investment Strategy for the year is to gain maximum benefit at minimum risk,” papers to the audit committee read.

“Senior Finance Officers are closely monitoring the Treasury position, particularly with the likelihood of the interest rates cuts and the timing of these.”