Brexit uncertainty helped fuel almost £2bn of borrowing from the Public Works Loan Board in March – the highest monthly total for seven years.
Councils took advantage of plummeting interest rates on offer from the PWLB in a month that saw Parliament wrest control of the Brexit process from the UK government.
Local authorities borrowed £1.93bn during the month, the largest amount borrowed in a single month since March 2012, when councils took more than £12bn in advance of the introduction of the housing revenue account self-financing system.
David Blake, strategic director at treasury adviser Arlingclose, said: “Rates have tumbled as Brexit unravels amid signs of a slowdown in the US, meaning authorities have refinanced some of their rolling short-term debt with longer PWLB loans.”
At the beginning of March, the PWLB 50-year new loan annuity rate stood at 2.84%, but dropped to a low of 2.51% by March 26, the day after MPs voted to take control of the Brexit process.
The 50-year new loan maturity rate started the month at 2.70% before falling to a low of 2.36% on 26 March.
During the month, Woking Borough Council was the largest borrower, taking £160m in a series of loans across the month.
Speaking to Room151, Leigh Clarke, financial services manager at the council, said: “If we are getting money in at 230 basis points compared to 270 then that means a huge saving on a loan of tens of millions of pounds.”
The council will use the PWLB cash to fix some of its short-term lending, and will use some to fund its capital programme which include the Victoria Square town centre regeneration development.
London Borough of Croydon took £40m during March, to fund housing investment and other capital schemes.
Lisa Taylor, interim director of finance at the authority said: “Good rates were on offer and there was a bit of nervousness about Brexit. We also thought we might need some cash for contingency if there had been a hard Brexit.”
Leeds City Council borrowed £60m from PWLB during March.
A spokesperson said: “The council was funding some of its long-term borrowing requirement from internal resources and low short-term loans.
“However, we switch to long-term borrowing by taking advantage of market opportunities as they arise.
“Two tranches of £30m were taken and applied to capital expenditure incurred in previous years for the general fund account”
March’s borrowing bonanza comes a month after Room151 reported that councils had already begun to convert short-term debt into longer term borrowing.
Two of the biggest borrowers during February – when £737m was taken out – told Room151 that they had used the money to push out the duration of portions of their debt.
But Blake recommended that councils keep some of their powder dry, despite the low rates on offer through the PWLB.
He said: “Short-term funding remains half the cost of longer PWLB loans and is much more flexible, with limited chance of significantly higher bank rate over the next few years.
“A balanced portfolio is a sensible position to take – interest rate movements aren’t a one way bet”.
The March borrowing takes the rolling year’s total for PWLB loans to £9.1bn– up from £8.2bn at the end of February.
It is also up £78% on the £5.1bn borrowed by local authorities from the facility between April 2017 and March 2018.
