Agenda item

(A report by Russell Stone, Director of Finance (S151 Officer))

The Committee received the Quarter 3 Treasury Management Report for the 2025/26 financial year, presented by the Treasury and Investment Manager (PSPSL), which provided an update on treasury management activity, investment performance, borrowing position and compliance with the Council’s approved Treasury Management Strategy for the period ending 31^st December 2025.

Members were advised that the report had been prepared in accordance with the CIPFA Code of Practice on Treasury Management and formed part of the Council’s ongoing governance and assurance arrangements. The Council’s treasury management priorities of security, liquidity and yield remained unchanged and continued to underpin all investment and borrowing decisions.

The Committee was provided with an overview of the prevailing economic environment during the reporting period. It was noted that economic growth had remained subdued, inflation had continued to fall from earlier peaks, and interest rates had reduced slightly towards the end of the calendar year. Members were advised that the interest rate forecast included within the report had been updated following changes in global conditions and reflected a longer period of interest rate stability than previously anticipated.

The Committee noted that the Council had continued to invest surplus cash balances in accordance with the approved strategy. Total investments held at 31^st December 2025 had reduced compared to the start of the financial year, reflecting the planned use of reserves, the drawdown of grants and the funding of capital expenditure. Investment performance remained strong overall, with favourable variances reported against budgeted investment income for the period.

Members received an overview of the Council’s borrowing position and were advised that the Council remained in an under?borrowed position, using internal cash balances to fund capital expenditure where appropriate. Borrowing costs remained below budget, reflecting the timing of borrowing decisions and the early redemption of higher?cost debt.

The Committee considered the section of the report relating to property fund investments in detail. Members were advised that headline returns from property funds continued to be lower than historic expectations and that overall valuations remained depressed, reflecting wider market conditions. It was explained that property fund investments were long?term in nature and subject to cyclical movements, with valuations influenced by interest rates, asset values and investor redemption activity.

Members questioned whether strong returns achieved on certain treasury investments created an incentive to increase individual investment values. The Treasury and Investment Manager explained that investment limits and counterparty exposure were actively managed to maintain diversification and protect capital, and that investment decisions were made within approved limits regardless of headline rates available.

The Committee discussed management fees associated with property fund investments and sought assurance that these remained appropriate given current performance. It was explained that fee structures were set within fund prospectuses and that elements of fees were performance?related, meaning lower returns were typically reflected in reduced overall fee levels.

Further discussion focused on the future outlook for property fund investments. Members queried whether there was a strategy to exit under?performing funds and how quickly decisions could be taken to limit further losses. The Treasury and Investment Manager advised that property funds were kept under continual review, but that immediate exit options were often constrained by notice periods, market conditions and potential valuation discounts. It was noted that fund wind?down arrangements, such as those already underway for one investment, could allow proceeds to be realised over time in a way which maximised value.

Members also discussed geopolitical risks and the potential impact of international instability on interest rate forecasts and borrowing costs. It was explained that global uncertainty could affect gilt yields and market confidence, with implications for both borrowing and investment returns. Officers confirmed that these risks were monitored closely and reflected in ongoing treasury advice.

Throughout discussion, the Committee acknowledged the complexity of treasury management activity and expressed appreciation for the clarity of reporting and the level of assurance provided. Members noted that, despite challenging market conditions, the Council continued to operate within prudential indicators and maintain a strong governance framework for treasury decisions.

The recommendations were proposed by Councillor Jonathan Noble and seconded by Councillor David Scoot.

Resolved:

That the Quarter 3 Treasury Management Report for 2025/26 be received and noted.