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change in investment interest rates. The six month and over rates have<br />
increased slightly reflecting the market sentiment that rates need to rise<br />
and the need to attract deposits. At the moment this will have minimal<br />
effect on the interest receipts that the <strong>Council</strong> obtains from its cash<br />
balances. However should these low rates continue then returns will be<br />
affected. The <strong>Council</strong> budgeted for an average rate of 1.25% on<br />
investments in 2011/12, and the forecast is that this is likely to be 1.15%<br />
despite longer term rates rising slightly. However the volume of funds<br />
available for investment is currently forecast to remain above the<br />
estimate of £20m at £22m which will enable the amount of interest<br />
budgeted for to be achieved.<br />
Table 1: Average Interest Rates 1 April 2011 to 30 September 2011<br />
April<br />
2011<br />
June<br />
2011<br />
July<br />
2011<br />
August<br />
2011<br />
Sept<br />
2011<br />
Base Rate (Bank Rate) 0.50 0.50 0.50 0.50 0.50<br />
Over Night 0.50 0.50 0.45 0.50 0.50<br />
7 Days 0.45 0.45 0.45 0.50 0.50<br />
1 month 0.55 0.55 0.55 0.60 0.60<br />
3 Months 0.75 0.75 0.75 0.85 0.90<br />
6 Months 1.05 1.00 1.00 1.10 1.16<br />
1 Year 1.50 1.45 1.45 1.60 1.66<br />
2.6 The <strong>Council</strong>’s Treasury Advisors, Sector provided a forecast for interest<br />
rates for both investments and PWLB borrowing as part of the Treasury<br />
Management Strategy. As a consequence of the Bank of England<br />
continuing to leave interest rates at their low level this forecast has been<br />
updated. Table 2 shows the forecast included in the Treasury Strategy<br />
and Table 3 shows the latest forecast.<br />
Table 2: Forecast for Interest Rates Included in Treasury Strategy<br />
2011 2012 2013 2014<br />
Now Q3 Q4 Q1/2 Q3/4 Q1/2 Q3/4 Q1/2<br />
% % % % % % % %<br />
Bank Rate 0.5 0.75 1.00 1.13 1.75 2.38 3.13 3.25<br />
5 Yr PWLB 2.45 3.70 3.80 3.95 4.15 4.40 4.65 4.80<br />
10 Yr PWLB 3.51 4.90 4.90 4.95 5.15 5.25 5.40 5.50<br />
25 Yr PWLB 4.58 5.40 5.40 5.45 5.50 5.55 5.65 5.70<br />
50 yr PWLB 4.75 5.40 5.40 5.45 5.50 5.55 5.65 5.70<br />
2.7 As can be seen from Tables 2 and 3 because the bank rate has<br />
remained at 0.5% this has had an impact on the forecast for rates later<br />
in this financial year and into the following financial years.<br />
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