The cost of local authority borrowing from the Public Works Loan Board (PWLB) has dropped by around 80 basis points following falling interest rates in the UK and US.
According to figures yesterday (17 September), fixed interest rates on a 10-year loan were 4.5% compared to highs of 5.3% in May. The rate on a 20-year loan also reduced to below 5%, at 4.76%.
This comes as the Bank of England’s Monetary Policy Committee prepares to announce its latest rate decision tomorrow after cutting the base rate to 5% in August.
Across the Atlantic, US inflation has fallen to its lowest level in August since February 2021, with the Federal Reserve poised to lower interest rates today.
David Blake, director at Arlingclose, commented: “Some PWLB rates have dropped around 80 basis points from their peak in May, amidst signs of faltering economic activity at home and in the US.
“Many authorities have been waiting for a fall in rates to close out interest rate risk; with some PWLB rates now below 4% several are pushing the button on borrowing.”
Blake explained that, as Housing Revenue Account (HRA) rates are 60 basis points lower than the PWLB standard rate, the interest on a 10-year HRA loan dropped to 3.9% yesterday.
UK inflation held steady at 2.2% in August, with some suggesting that this has taken a September rate cut off the table. However, the overall direction of travel remains positive.
Since PWLB rates have been high, many authorities have opted for a short-term borrowing strategy. “I’d recommend a strategic approach; authorities need to consider their current position and future funding requirement,” Blake told Room151.
“Those with lower exposure to rates will be happy to track bank rate lower using short-term debt, so will continue to borrow from peers rather than the PWLB facility,” Blake added.
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