Issue - meetings

The report set out the Authority's borrowing and lending activities during 2016/17, which were in line with decisions taken during the year to date, based on anticipated spending and interest rates prevailing at the time.

In accordance with the updated CIPFA Treasury Management Code of Practice (2011) and to strengthen Members’ oversight of the Authority’s treasury management activities, the Resources Committee received regular updates on treasury management issues including a mid-year report and a final outturn report. Reports on treasury activity were discussed on a quarterly basis with Lancashire County Council Treasury Management Team and the Authority's Director of Corporate Services and the content of these reports was used as a basis for this report to the Committee.

Economic Overview

The economic position and future outlook had been significantly influenced by the vote to leave the EU in the referendum on 23rd June 2016. This led to many economic commentators reducing their forecasts of economic growth. The risk of reduced growth was judged by the Bank of England to be severe, prompting the Monetary Policy Committee to initiate substantial monetary policy easing at its August meeting to mitigate the worst of the downside risks. This included a cut in Bank Rate to 0.25%, further gilt and corporate bond purchases (QE) and cheap funding for banks to maintain the supply of credit to the economy. Although the impact of the vote to leave the EU was highly speculative it was likely that the uncertainty on future trade relations would impact on growth and future reduction in rates were possible.

During the first part of the financial year the economy had grown. The first estimate of Q3 GDP released by the ONS showed the UK economy growing by 0.5% over the quarter and 2.3% year-on-year. Both of these figures were slightly above market expectations. The Q2 growth rates were growth of 0.7% over the quarter and 2.1% year on year.

The period had seen some change in inflation. Following BREXIT there had been a fall in the value of sterling which along with the near doubling in the price of oil in 2016 had combined to drive inflation expectations higher. Twelve-month CPI inflation had increased by 0.4% to 1.0% in September. The Bank of England was forecasting that Consumer Price Inflation would breach its 2% target in 2017, the first time since late 2013. However, the rise in inflation was highly unlikely to prompt monetary tightening by the Bank of England, with policymakers looking through import-led CPI spikes, concentrating instead on the negative effects of Brexit on economic activity and, ultimately, inflation.

The impact of the new government may also impact on economic conditions. After six years of fiscal consolidation it was seen as likely that the Autumn Statement would include fiscal initiatives to support economic activity.  This was most likely to be in the form of infrastructure investment although tax cuts or something similar could not be ruled out.

Interest Rate Environment

Short term interest rates continued at the very low  ...  view the full minutes text for item 32