Councillors have agreed the town hall’s borrowing and investment strategy for the next year.
Making the right moves in the money markets will be key to balancing the books while officers work on plans to find millions of pounds of savings and at the same time protect front line services.
The latest report from chief finance officer Bryan Smail on the council’s treasury management plans was considered by the Executive.
While his mid-year review highlighted the view of the Bank of England that the UK economy appears to be recovering and growth forecasts have been upgraded, it warns interest rates could start to rise next summer which will impact on borrowing costs.
The council has been able to keep its borrowing relatively low for years by using its own cash to fund capital spending.
But Mr Smail warned: “Going forward that will change. We will continue to operate within a sound and prudent regime and always look for the best interest rates from investing in the markets, but there is no such thing as a free lunch.”
Councillors were warned the estimated longer term borrowing requirement for the current financial year will be “significant” at £51 million and £22 million of loans are due to be repaid next year.
The council’s money expert said: “With this in mind it was agreed to consider the complete range of borrowing periods as and when we need to borrow. £12 million of the short term debt has already matured and been replaced with long terms loans. These loans may be replaced on a short or long term basis depending on prevailing interest rates at the date of maturity.
“Given the latest outlook for the future direction of interest rates it remains the case that funding of the longer term borrowing requirement will be linked to short term rates. We will be shortly speaking to our treasury advisors to determine the best mix of borrowing periods.”
He stressed key to the borrowing strategy will be making sure the loans are taken out at the most competitive rate of interest possible.
At the moment it has taken advantage of discounted borrowing from the Public Works Loan Board which has extended its guarantee to maintain present rates for a further year. The council has already submitted an application to the ‘Council Bank’ and is waiting for a response.
The interest rate forecast being predicted by the experts will see the current Bank of England base rate of 0.50 per cent going up to 1.25 per cent by 2016. At the same time borrowing for three months, which currently attracts 0.45 per cent interest, will cost 1.55 per cent and for a year 1.95 per cent as opposed to 0.89 per cent today.
Public Works Loan Board rates used by eligible Scottish local authorities including Falkirk offer loans for between five and 50 years.
Its current five year deal charges 2.55 per cent but is predicted to rise to 3.15 per cent in two years time while interest on a 50-year loan will move from 3.29 per cent to 4.63 per cent.
The Executive was told the council has £7 million invested in two UK banks in accounts providing instant access.
Mr Smail added: “The primary objectives of the council’s investment strategy remain first and foremost to ensure the timeous and full repayment of principal and interest then securing adequate access of funds invested and optimising returns for our investment consistent with the risks.”
The report goes before the full council on Wednesday.