Total inter-authority lending has risen above £10bn for the first time, according to government statistics.
The latest borrowing and investment figures from the Ministry of Housing, Communities & Local Government (MHCLG) show £10.75bn of outstanding loans between local authorities during the third quarter.
This amounts to a 7.8% rise on the £9.97bn recorded during the second quarter of the year.
Amar Jandoo, assistant client director at treasury advisor Arlingclose, wrote in a recent blog that the credit strength of local authorities remains strong, despite changes in the perception of local authority credit risk over the past decade.
Jandoo said: “As local authorities seek to generate other income streams and borrow to make capital investments in more diverse projects with potentially volatile cash flows, more emphasis has been placed on the risk profile of individual authorities.
“Regardless of these developments, local authority credit strength remains high due to the legislative requirements and likely support of central government.
“Councils are also able to access funding from the PWLB quickly and easily. Although some authorities may falter, the prospect of a local authority defaulting on loan obligations remains low.”
Inter-authority lending leapt 40% to almost £7bn in 2016-17, as local authorities continued to lose patience with bank and building society deposits, as well as certificates of deposit.
In November Arlingclose launched the first trading platform enabling inter-authority lending and borrowing to be fully completed online.
The third quarter also saw local authority investments in gilts more than double on the second quarter, rising from £259m to £569m.
Separate figures from MHCLG showed that local authorities also spent above the £1bn threshold on land and buildings during the same period.
Spending on the asset category reached £1.1bn between October and December 2017, up from £854m in the second quarter.
As recently as Q1 2016, the figure was only £339m, with the recent surge likely to be linked to the rise in councils investing in property to secure income.
Last week the government published the final wording of its investment code, a revision seen by some commentators as a move aimed at dampening investment in property.
