Treasury Management Strategy Statement 2026/27

1. Introduction

1. 1.1.Treasury management is the management of the Authority's cash flows, borrowing and investments, and the associated risks. The Authority has borrowed substantial sums of money and is therefore exposed to financial risks including the loss of invested funds and the revenue effect of changing interest rates.  The successful identification, monitoring and control of financial risk are therefore central to the Authority's prudent financial management.
2. 1.2.Treasury risk management at the Authority is conducted within the framework of the Chartered Institute of Public Finance and Accountancy's Treasury Management in the Public Services: Code of Practice 2021 Edition (the CIPFA Code) which requires the Authority to approve a treasury management strategy before the start of each financial year. This report fulfils the Authority's legal obligation under the Local Government Act 2003 to have regard to the CIPFA Code.
3. 1.3. Investments held for service purposes or for commercial profit are considered in a different report, the Investment Strategy.

2. Current position and projection

1. 2.1.On 31st December 2025, the Authority held £143.28m of borrowing and £13.78m of treasury investments.  This is set out in further detail at Appendix C.  Table 1 below provides a summary of the Authority's treasury portfolio as at the end of December 2025:
2. 2.2. Future borrowing is shown below in the balance sheet analysis in table 1. The forecast changes in these sums have been informed by future housing revenue account and the general fund capital programmes and are detailed in the Capital Strategy.

3. Table 2 - balance sheet summary and forecast

   Table 1 - balance sheet summary and forecast	31/3/25 Actual (£m)	31/3/26 Estimate (£m)	31/3/27 Forecast (£m)	31/3/28 Forecast (£m)	31/3/29 Forecast (£m)
   Capital Financing requirement General Fund	£77.694	£84.150	£94.644	£101.219	£104.667
   Capital Financing requirement HRA	£95.649	£101.081	£109.572	£116.017	£116.599
   Total CFR	£173.343	£185.231	£204.216	£217.236	£221.266
   Less: other debt liabilities*	(£1.591)	(£1.488)	(£0.978)	(£0.614)	(£0.281)
   Loans CFR	£171.752	£183.743	£203.238	£216.622	£220.985
   Less: External borrowing**	£143.280	£138.170	£87.060	£86.940	£85.430
   Internal (over) borrowing	£28.472	£45.573	£116.178	£129.682	£135.555
   Less: Balance sheet resources	(£50.988)	(£41.345)	(£39.109)	(£42.447)	(£44.664)
   Treasury investments (or New borrowing)	£22.517	(£4.228)	(£77.069)	(£87.235)	(£90.891)

   • *Leases and PFI liabilities that form part of the Authority's total debt
   • **shows only loans to which the Authority is committed and excludes optional refinancing
4. 2.3.The underlying need to borrow for capital purposes is measured by the Capital Financing Requirement (CFR), while balance sheet resources are the underlying resources available for investment.  The Authority's current strategy is to maintain borrowing and investments below their underlying levels, sometimes known as internal borrowing.
5. 2.4.The Authority has an increasing CFR due to the timings of the approved capital programme, but minimal investments and will therefore be required to borrow up to an additional £91m over the forecast period.
6. 2.5.CIPFA's Prudential Code for Capital Finance in Local Authorities recommends that the Authority's total debt should be lower than its highest forecast CFR over the next three years.  Table 1 shows that the Authority expects to comply with this recommendation during 2026/27, and Appendix D illustrates the Operational Boundary and Authorised Limits.
7. 2.6.Liability benchmark: to compare the Authority's actual borrowing against an alternative strategy, a liability benchmark has been calculated showing the lowest risk level of borrowing. This assumes the same forecasts as table 2 above, but that cash and investment balances are kept to a minimum level of £12m at each year-end to maintain sufficient liquidity but minimise credit risk.
8. 2.7. The liability benchmark is an important tool to help establish whether the Authority is likely to be a long-term borrower or long-term investor in the future, and so shape its strategic focus and decision making. The liability benchmark itself represents an estimate of the cumulative amount of external borrowing the Authority must hold to fund its current capital and revenue plans while keeping treasury investments at the minimum level required to manage day-to-day cash flow.

9. Table 3 - Prudential Indicator Liability benchmark

   Table 2 - Prudential Indicator Liability benchmark	31.3.25 Actual (£m)	31.3.26 Estimate (£m)	31.3.27 Forecast (£m)	31.3.28 Forecast (£m)	31.3.29 Forecast (£m)
   Loans/CFR	£171.752	£183.743	£203.238	£216.622	£220.985
   Less: Balance sheet resources (including working capital)	(£50.988)	(£41.345)	(£39.109)	(£42.447)	(£44.664)
   Net loans requirement	£120.764	£142.398	£164.129	£174.175	£176.321
   Plus: Liquidity allowance	£10.000	£10.000	£10.000	£10.000	£10.000
   Liability benchmark	£130.764	£152.398	£174.129	£184.175	£186.321

   CFR above includes adjustments for long term liabilities.

10. 2.8. Following on from the medium-term forecasts in table 2 above, the long-term liability benchmark assumes capital expenditure funded by borrowing in line with the current forecast capital programme, minimum revenue provision and income, expenditure and reserves all in line with the 2026/27 budget and forecasts. This is shown in the chart below together with the maturity profile of the Authority's existing borrowing:
12. 2.9.The chart above allows a comparison of current borrowing against the need to borrow, looking at both the amount (on the y axis) and the term (on the x axis). Where actual loans exceed the liability benchmark, the authority can make long-term investments for cash flow management or repay loans early; where the liability benchmark exceeds loans, the authority can take long-term borrowing or sell investments.

3. Borrowing Strategy

1. 3.1.As at the 31st December 2025 the Authority held £141.2 million of loans, an increase of £2.4 million on the previous year, as part of its strategy for funding previous years' capital programmes.  The balance sheet forecast in table 2 shows that the Authority expects to borrow up to £164m in 2026/27 if it used all if its internal resources (i.e. usable reserves and working capital shown in table 2).  The Authority may also borrow additional sums to pre-fund future years' requirements, providing this does not exceed the authorised limit for borrowing of £212 million.
2. 3.2. Objectives: the Authority's chief objective when borrowing money is to strike an appropriately low risk balance between securing low interest costs and achieving certainty of those costs over the period for which funds are required.  The flexibility to renegotiate loans should the Authority's long-term plans change is a secondary objective.
3. 3.3.Strategy: given the significant cuts to public expenditure and in particular to local government funding, the Authority's borrowing strategy continues to address the key issue of affordability without compromising the longer-term stability of the debt portfolio. Short-term interest rates have fallen over the past year, and are expected to fall a little further, and it is therefore likely to be more cost effective over the medium-term to either use internal resources, or to borrow short-term loans instead. The risks of this approach will be managed by keeping the Authority's interest rate exposure within the limit set in the treasury management prudential indicators, see below.
4. 3.4.By doing so, the Authority is able to reduce net borrowing costs (despite foregone investment income) and reduce overall treasury risk. The benefits of short-term borrowing will be monitored regularly against the potential for incurring additional costs by deferring borrowing into future years when long-term borrowing rates are forecast to rise modestly. Arlingclose will assist the Authority with this 'cost of carry' and breakeven analysis. Its output may determine whether the Authority borrows additional sums at long-term fixed rates in 2026/27 with a view to keeping future interest costs low, even if this causes additional cost in the short-term.
5. 3.5.The Authority has previously raised the majority of its long-term borrowing from the PWLB but will consider long-term loans from other sources including banks, pensions and local authorities, and will investigate the possibility of issuing bonds and similar instruments, in order to lower interest costs and reduce over-reliance on one source of funding in line with the CIPFA Code. PWLB loans are no longer available to local authorities planning to buy investment assets primarily for yield; the Authority intends to avoid this activity in order to retain its access to PWLB loans.
6. 3.6. Alternatively, the Authority may arrange forward starting loans, where the interest rate is fixed in advance, but the cash is received in later years. This would enable certainty of cost to be achieved without suffering a cost of carry in the intervening period.
7. 3.7. In addition, the Authority may borrow further short-term loans to cover unplanned cash flow shortages.
8. 3.8. Sources of borrowing: the approved sources of long-term and short-term borrowing are:
   • HM Treasury's PWLB lending facility (formerly the Public Works Loan Board)
   • National Wealth Fund Ltd (formerly UK Infrastructure Bank Ltd)
   • any institution approved for investments (see below)
   • any other bank or building society authorised to operate in the UK
   • any other UK public sector body
   • UK public and private sector pension funds (except Norfolk Pension Fund)
   • capital market bond investors
   • retail investors via a regulated peer-to-peer platform
   • other special purpose companies created to enable local authority bond issues
9. 3.9.Other sources of debt finance: In addition, capital finance may be raised by the following methods that are not borrowing, but may be classed as other debt liabilities:
   • leasing
   • hire purchase
   • Private Finance Initiative
   • sale and leaseback
   • similar asset based finance
10. 3.10.LOBOs: The Authority holds £3m of LOBO (Lender's Option Borrower's Option) loans where the lender has the option to propose an increase in the interest rate at set dates, following which the Authority has the option to either accept the new rate or to repay the loan at no additional cost and with long-term interest rates having risen recent years, there is now a reasonable chance that lenders will exercise their options. If they do, the Authority will take the option to repay LOBO loans to reduce refinancing risk in later years. The next date for this option is 2 November 2029.
11. 3.11.Short-term and variable rate loans: These loans leave the Authority exposed to the risk of short-term interest rate rises and are therefore subject to the interest rate exposure limits in the treasury management indicators below.  Financial derivatives may be used to manage this interest rate risk (see section below).
12. 3.12.Debt rescheduling: The PWLB allows authorities to repay loans before maturity and either pay a premium or receive a discount according to a set formula based on current interest rates. Other lenders may also be prepared to negotiate premature redemption terms. The Authority may take advantage of this and replace some loans with new loans, or repay loans without replacement, where this is expected to lead to an overall cost saving or a reduction in risk. The recent rise in interest rates means that more favourable debt rescheduling opportunities should arise than in previous years.

4.Treasury investment strategy

1. 4.1.The Authority holds significant invested funds, representing income received in advance of expenditure plus balances and reserves held. In the past 12 months, the Authority's treasury investment balance has ranged between £11 and £29 million, and similar levels are expected to be maintained in the forthcoming year.
2. 4.2.Objectives: The CIPFA Code requires the Authority to invest its treasury funds prudently, and to have regard to the security and liquidity of its investments before seeking the highest rate of return, or yield. The Authority's objective when investing money is to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk of receiving unsuitably low investment income. Where balances are expected to be invested for more than one year, the Authority will aim to achieve a total return that is equal or higher than the prevailing rate of inflation, in order to maintain the spending power of the sum invested. The Authority aims to be a responsible investor and will consider environmental, social and governance (ESG) issues when investing.
3. 4.3.Strategy: As demonstrated by the liability benchmark above, the Authority expects to be a long-term borrower and new treasury investments will therefore be made primarily to manage day-to-day cash flows using short-term low risk instruments. The existing portfolio of strategic pooled funds will be maintained to diversify risk into different sectors and boost investment income.
4. 4.4.ESG policy: Environmental, social and governance (ESG) considerations are increasingly a factor in global investors' decision making, but the framework for evaluating investment opportunities is still developing and therefore the Authority's ESG policy does not currently include ESG scoring or other real-time ESG criteria at an individual investment level. When investing in banks and funds, the Authority will prioritise banks that are signatories to the UN Principles for Responsible Banking and funds operated by managers that are signatories to the UN Principles for Responsible Investment, the Net Zero Asset Managers Alliance and/or the UK Stewardship Code.
5. 4.5.Business models: Under the new IFRS 9 standard, the accounting for certain investments depends on the Authority's "business model" for managing them. The Authority aims to achieve value from its treasury investments by a business model of collecting the contractual cash flows and therefore, where other criteria are also met, these investments will continue to be accounted for at amortised cost.
6. 4.6. Approved Counterparties: The Authority may invest its surplus funds with any of the counterparty types in table 3 below, subject to the limits shown.

7. Table 3 - Treasury investment counterparties and limits

   Sector	Time limit	Counterparty limit	Sector limit
   The UK Government	50 years	Unlimited	n/a
   Local authorities and other government entities	2 years	£3m (per Council)	Unlimited
   Secured investments - government collateral	5 years	£3m	Unlimited
   Secured investments - other collateral*	5 years	£3m	Unlimited
   Banks (unsecured)*	1 year	£1.6m	Unlimited
   Building societies (unsecured)*	1 year	£1.5m	£1.5m
   Registered providers (unsecured)*	5 years	£1.5m	£3m
   Money market funds*	n/a	£5m	Unlimited
   Strategic pooled funds	n/a	£3m	£6m
   Other investments*	2 years	£1m	£2m

   This table must be read in conjunction with the notes below

8. *Minimum credit rating: Treasury investments in the sectors marked with an asterisk will only be made with entities whose lowest published long-term credit rating is no lower thanA.Where available, the credit rating relevant to the specific investment or class of investment is used, otherwise the counterparty credit rating is used. However, investment decisions are never made solely based on credit ratings, and all other relevant factors including external advice will be taken into account.For entities without published credit ratings, investments may be made either (a) where external advice indicates the entity to be of similar credit quality; or (b) to a maximum of £5m per counterparty as part of a diversified pool e.g. via a peer-to-peer platform.

9. Time limits: These start on the earlier of date that the Authority is committed to make the investment and the date that cash is transferred to the counterparty.

10. 4.7. UK Government: Sterling-denominated investments with or explicitly guaranteed by the UK Government, including the Debt Management Account Deposit Facility, treasury bills and gilts. These are deemed to be zero credit risk due to the government's ability to create additional currency and therefore may be made in unlimited amounts for up to 50 years.
11. 4.8.Local authorities and other government entities: loans to, and bonds and bills issued or guaranteed by, other national governments, regional and local authorities and multilateral development banks. These investments are not subject to bail-in, and there is generally a lower risk of insolvency, although they are not zero risk.
12. 4.9. Secured investments: investments secured on the borrower's assets, which limits the potential losses in the event of insolvency. The amount and quality of the security will be a key factor in the investment decision. Secured deposits and reverse repurchase agreements with banks and building societies are exempt from bail-in. Where there is no investment specific credit rating, but the collateral upon which the investment is secured has a credit rating, the higher of the collateral credit rating and the counterparty credit rating will be used. The combined secured and unsecured investments with any one counterparty will not exceed the cash limit for secured investments. A higher limit applies for investments fully secured on Uk or other government collateral.
13. 4.10. Banks and building societies (unsecured): Accounts, deposits, certificates of deposit and senior unsecured bonds with banks and building societies, other than multilateral development banks. These investments are subject to the risk of credit loss via a bail-in should the regulator determine that the bank is failing or likely to fail. See below for arrangements relating to operational bank accounts.
14. 4.11. Registered providers (unsecured):Loans to, and bonds issued or guaranteed by, registered providers of social housing or registered social landlords, formerly known as housing associations. These bodies are regulated by the Regulator of Social Housing (in England), the Scottish Housing Regulator, the Welsh Government and the Department for Communities (in Northern Ireland). As providers of public services, they retain the likelihood of receiving government support if needed. 
15. 4.12. Money market funds: Pooled funds that offer same-day or short notice liquidity and very low or no price volatility by investing in short-term money markets. They have the advantage over bank accounts of providing wide diversification of investment risks, coupled with the services of a professional fund manager in return for a small fee. Although no sector limit applies to money market funds, the Authority will take care to diversify its liquid investments over a variety of providers to ensure access to cash at all times.
16. 4.13. Strategic pooled funds: Bond, equity and property funds, including exchange traded funds, that offer enhanced returns over the longer term but are more volatile in the short term.  These allow the Authority to diversify into asset classes other than cash without the need to own and manage the underlying investments. Because these funds have no defined maturity date but can be either withdrawn after a notice period or sold on exchange, their performance and continued suitability in meeting the Authority's investment objectives will be monitored regularly.
17. 4.14. Other investments: this category covers treasury investments not listed above, for example unsecured corporate bonds and company loans. Non-bank companies cannot be bailed-in but can become insolvent placing the Authority's investment at risk.
18. 4.15.Operational bank accounts: The Authority may incur operational exposures, for example though current accounts, collection accounts and merchant acquiring services, to any UK bank with credit ratings no lower than BBB- and with assets greater than £25 billion. These are not classed as investments but are still subject to the risk of a bank bail-in, and balances will therefore be kept as low as possible without affecting operations. The Bank of England has stated that in the event of failure, banks with assets greater than £25 billion are more likely to be bailed-in than made insolvent, increasing the chance of the Authority maintaining operational continuity.
19. 4.16. Risk assessment and credit ratings: credit ratings are obtained and monitored by the Authority's treasury advisers, who will notify changes in ratings as they occur. The credit rating agencies in current use are listed in the Treasury Management Practices document. Where an entity has its credit rating downgraded so that it fails to meet the approved investment criteria then:
    • no new investments will be made
    • any existing investments that can be recalled or sold at no cost will be
    • full consideration will be given to the recall or sale of all other existing investments with the affected counterparty
20. 4.17.Where a credit rating agency announces that a credit rating is on review for possible downgrade (also known as "negative watch") so that it may fall below the approved rating criteria, then only investments that can be withdrawn [on the next working day] will be made with that organisation until the outcome of the review is announced. This policy will not apply to negative outlooks, which indicate a long-term direction of travel rather than an imminent change of rating.
21. 4.18. Other information on the security of investments: the Authority understands that credit ratings are good, but not perfect, predictors of investment default. Full regard will therefore be given to other available information on the credit quality of the organisations in which it invests, including credit default swap prices, financial statements, information on potential government support, reports in the quality financial press and analysis and advice from the Authority's treasury management adviser. No investments will be made with an organisation if there are substantive doubts about its credit quality, even though it may otherwise meet the above criteria.
22. 4.19. Reputational aspects: the Authority is aware that investment with certain counterparties, while considered secure from a purely financial perspective, may leave it open to criticism, valid or otherwise, that may affect its public reputation, and this risk will therefore be taken into account when making investment decisions.
23. 4.20. When deteriorating financial market conditions affect the creditworthiness of all organisations, as happened in 2008 and 2020 and 2022 this is not generally reflected in credit ratings, but can be seen in other market measures. In these circumstances, the Authority will restrict its investments to those organisations of higher credit quality and reduce the maximum duration of its investments to maintain the required level of security. The extent of these restrictions will be in line with prevailing financial market conditions. If these restrictions mean that insufficient commercial organisations of high credit quality are available to invest the Authority's cash balances, then the surplus will be deposited with the UK Government, or with other local authorities. This will cause investment returns to fall but will protect the principal sum invested.
24. 4.21.Investment limits: the Authority's revenue reserves available to cover investment losses are forecast to be £14.6 million on 31st March 2026 and £12.8 million on 31st March 2027. In order to reduce the risk of a single default, the maximum that will be lent unsecured to any one organisation (other than the UK Government) will be £3 million, other than Money Market Funds which the limit set is £5 million, strategic pooled funds which the limit per fund is £3 million and for UK central government where there is no limit. A group of entities under the same ownership will be treated as a single organisation for limit purposes.
25. 4.22. Credit risk exposures arising from non-treasury investments, financial derivatives and balances greater than £1.5 million in operational bank accounts count against the relevant investment limits, allowing £100,000 retained for operational purposes.
26. 4.23. Limits are also placed on fund managers, investments in brokers' nominee accounts and foreign countries as below. Investments in pooled funds and multilateral development banks do not count against the limit for any single foreign country since the risk is diversified over many countries.

27. Table 5: Additional investment limits

    Table 4 - additional investment limits	Cash limit
    Any group of pooled funds under the same management	£10m per manager
    Negotiable instruments held in a broker's nominee account	£5m per broker
    Foreign countries	£1.5m per country

28. 4.24.Cash Flow/Liquidity management: the Authority's officers maintain a detailed cash flow forecast for each coming year revising it as more information becomes available. This informs the short-term investments such as those to pay precept payments. The forecast is compiled on a prudent basis with receipts being under- estimated and payments over-estimated to minimise the risk of the Authority being forced to borrow on unfavourable terms to meet its financial commitments. The long-term investment strategy is based on the Authority's medium-term strategy.
29. 4.25. The Authority will spread its liquid cash over at least three providers (e.g. bank accounts and money market funds), or which at least two will be UK domiciled, to ensure that access to cash is maintained in the event of operational difficulties at any one provider.

5. Treasury Management Prudential Indicators.

1. 5.1Interest rate exposures: this indicator is set to control the Authority's exposure to interest rate risk. The upper limits on the one-year revenue impact of a 1% rise or fall in interest rates will be:

2. Interest rate exposures

   Interest rate risk indicator	Limit £000
   Upper limit on one-year revenue impact of a 1% rise in interest rates	£300
   Upper limit on one-year revenue impact of a 1% fall in interest rates	(£300)

3. The impact of a change in interest rates is calculated on the assumption that maturing loans and investments will be replaced at new market rates.
4. 5.2.Maturity structure of borrowing: this indicator is set to control the Authority's exposure to refinancing risk. The upper and lower limits on the maturity structure of borrowing will be:

5. Maturity structure of borrowing

   Refinancing rate risk indicator	Upper limit	Lower limit
   Under 12 months	60%	10%
   12 months and within 24 months	40%	0%
   24 months and within 5 years	40%	0%
   5 years and within 10 years (treat lobos repay)	40%	0%
   10 years and above	80%	20%

6. Time periods start on the first day of each financial year. The maturity date of borrowing is the earliest date on which the lender can demand repayment.
7. 5.3 Long-term treasury management investments: The purpose of this indicator is to control the Authority's exposure to the risk of incurring losses by seeking early repayment of its investments. The limits on the long-term principal sum invested to final maturities beyond the period end will be:

8. Long-term treasury management investments

   Price risk indicator	2026/27	2027/28	2028/29	No fixed date
   Limit on principal invested beyond year end	£10m	£10m	£10m	£1m

9. Long-term investments with no fixed maturity date include strategic pooled funds but exclude money market funds and bank accounts with no fixed maturity date as these are considered short-term.

6. Other Treasury management issues

1. 6.1. The CIPFA Code requires the Authority to include the following in its treasury management strategy.
2. 6.2. Financial derivatives: local authorities have previously made use of financial derivatives embedded into loans and investments both to reduce interest rate risk (e.g. interest rate collars and forward deals) and to reduce costs or increase income at the expense of greater risk (e.g. LOBO loans and callable deposits). The general power of competence in section 1 of the Localism Act 2011 removes much of the uncertainty over local authorities' use of standalone financial derivatives (i.e. those that are not embedded into a loan or investment).
3. 6.3. The Authority will only use standalone financial derivatives (such as swaps, forwards, futures and options) where they can be clearly demonstrated to reduce the overall level of the financial risks that the Authority is exposed to. Additional risks presented, such as credit exposure to derivative counterparties, will be taken into account when determining the overall level of risk. Embedded derivatives, including those present in pooled funds and forward starting transactions, will not be subject to this policy, although the risks they present will be managed in line with the overall treasury risk management strategy.
4. 6.4.Financial derivative transactions may be arranged with any organisation that meets the approved investment criteria, assessed using the appropriate credit rating for derivative exposures. An allowance for credit risk calculated using the methodology in the Treasury Management Practices document will count against the counterparty credit limit and the relevant foreign country limit.
5. 6.5.In line with the CIPFA Code, the Authority will seek external advice and will consider that advice before entering into financial derivatives to ensure that it fully understands the implications.
6. 6.6. Housing Revenue Account: the policy on apportioning interest for HRA - on 1st April 2012, the Authority notionally split each of its existing long-term loans into General Fund and HRA pools. Annually a calculation is performed to allocate interest between the General Fund and HRA. Where the value of the HRA loans pool is below the HRA capital financing requirement, interest on this "under-borrowing" will be charged to the HRA at the Authority's average rate of short-term borrowing.
7. 6.7.Markets in Financial Instruments Directive (MiFID II): the Authority has opted up to professional client status with its providers of financial services, including advisers, banks, brokers and fund managers, allowing it access to a greater range of services but with the greater regulatory protections afforded to individuals and small companies. Given the size and range of the Authority's treasury management activities, the Chief Financial Officer believes this to be the most appropriate status.

7. Financial Implications

1. 7.1.The budget for treasury investment income in 2026/27 is £532k based on an average investment portfolio of £19m. The majority of which is invested in low-risk short term investments with interest rates between 3.84%-4.53%, with any new loans are borrowed at an assumed rate of 4.4%. A further £1m is invested in a long-term pooled investment fund where the value changes with market prices and have a notice period. The budget for debt interest paid for the General Fund is £2.2m and HRA is £4.1m in 2026/27. Actual levels of investments and borrowing, and actual interest rates are monitored during the year as part of the budget monitoring process.
2. 7.2. Other options considered - The CIPFA Code does not prescribe any particular treasury management strategy for local authorities to adopt. The Section 151 Officer believes that the strategy represents an appropriate balance between risk management and cost effectiveness. Some alternative strategies, with their financial and risk management implications, are listed below.

3. Other options considered

   Alternative	Impact on income and expenditure	Impact on risk management
   Invest in a narrower range of counterparties and/or for shorter times	Interest income will be lower	Lower chance of losses from credit related defaults, but any such losses may be greater
   Invest in a wider range of counterparties and/or for longer times	Interest income will be higher	Increased risk of losses from credit related defaults, but any such losses may be smaller
   Borrow additional sums at long-term fixed interest rates	Debt interest costs will rise; this is unlikely to be offset by higher investment income	Higher investment balance leading to a higher impact in the event of a default; however long-term interest costs may be more certain
   Borrow short-term or variable loans instead of long-term fixed rates	Debt interest costs will initially be lower	Increases in debt interest costs will be broadly offset by rising investment income in the medium term, but long-term costs may be less certain
   Reduce level of borrowing	Saving on debt interest is likely to exceed lost investment income	Reduced investment balance leading to a lower impact in the event of a default; however long-term interest costs may be less certain

Appendix A

1. Economic background and interest rate forecast - January 2026

2. Economic background: The most significant impacts on the Authority's treasury management strategy for 2026/27 are expected to include: the influence of the government's 2025 Autumn Budget, lower short-term interest rates alongside higher medium- and longer-term rates, slower economic growth, together with ongoing uncertainties around the global economy, stock market sentiment, and geopolitical issues.

3. The Bank of England's Monetary Policy Committee (MPC) cut Bank Rate to 3.75% in December 2025, as expected. The vote to cut was 5-4, with the minority instead favouring holding rates at 4.0%. Those members wanting a cut judged that disinflation was established while those preferring to hold Bank Rate argued that inflation risks remained sufficiently material to leave rates untouched at this stage.

   Figures from the Office for National Statistics showed that the UK economy expanded by 0.1% in the third quarter of the calendar year, this was unrevised from the initial estimate. The most recent Monetary Policy Report (November) projected modest economic growth, with GDP expected to rise by 0.2% in the final calendar quarter of 2025. Annual growth is forecast to ease from 1.4% before improving again later, reflecting the delayed effects of lower interest rates, looser monetary conditions, stronger global activity, and higher consumer spending. The view of modest economic growth going forward was echoed by the Office for Budget Responsibility in its Economic and fiscal outlook published in line with the Autumn Statement which revised down its estimate of annual real GDP to around 1.5% on average between 2025 and 2030.

   CPI inflation was 3.2% in November 2025, down from 3.6% in the previous month and below the 3.5% expected. Core CPI eased to 3.2% from 3.4%, contrary to forecasts of remaining at 3.6%. Looking forward, the MPC continues to expect inflation to fall, to around 3% in calendar Q1 2026, before steadily returning to the 2% target by late 2026 or early 2027.

   The labour market continues to ease with rising unemployment, falling vacancies and flat inactivity. In the three months to October 2025, the unemployment rate increased to 5.1%, higher than the level previously expected by the BoE, while the employment rate slipped to 74.9%. Pay growth for the same period eased modestly, with total earnings (including bonuses) growth at 4.7% and while regular pay was 4.6%.

   The US Federal Reserve also continued to cut rates, including reducing the target range for the Federal Funds Rate by 0.25% at its December 2025 meeting, to 3.50%-3.75%, in line with expectations. The minutes of the meeting noted that most Fed policymakers judged that further rate cuts would be likely in 2026 if inflation continues to ease, however they were still divided in their assessment of the risks between inflation and unemployment.

   The European Central Bank (ECB) kept its key interest rates unchanged in December for a fourth consecutive meeting, maintaining the deposit rate at 2.0% and the main refinancing rate at 2.15%. The ECB maintained that future policy decisions will remain data-dependent, that inflation is close to its 2% target and that the euro area economy continues to expand despite a challenging global environment, including heightened geopolitical risks and trade tensions.

   Credit outlook: Credit Default Swap (CDS) prices, which spiked in April 2025 following President Trump's 'Liberation Day' tariff announcements, have since trended lower, returning to levels broadly consistent with their 2024 averages. Although CDS prices rose modestly in October, the overall credit outlook remains stable, and credit conditions are expected to remain close to the range seen over the past two years.

   While lower interest rates may weigh on banks' profitability, strong capital positions, easing inflation, steady economic growth, low unemployment, and reduced borrowing costs for households and businesses all support a favourable outlook for the creditworthiness of institutions on (the authority's treasury management advisor) Arlingclose's counterparty list. Arlingclose's advice on approved counterparties and recommended investment durations is kept under continuous review and will continue to reflect prevailing economic and credit conditions.

   Interest rate forecast (22^nd December 2025): Arlingclose, the Authority's treasury management adviser, currently forecasts that the Bank of England's Monetary Policy Committee will continue to reduce Bank Rate in 2026, reaching around 3.25%. This forecast reflects amendments made following the Autumn Budget and an assessment of the fiscal measures and their market implications, and following the BoE MPC meeting held on 18th December.

   Long-term gilt yields, and therefore interest rates payable on long-term borrowing, are expected to remain broadly stable on average, though with continued volatility, and to end the forecast period marginally lower than current levels. Yields are likely to stay higher than in the pre-quantitative tightening era, reflecting ongoing balance sheet reduction and elevated bond issuance. Short-term fluctuations are expected to persist in response to economic data releases and geopolitical developments.

   A more detailed economic and interest rate forecast provided by Arlingclose is in Appendix B.

Appendix B

Arlingclose Economic & Interest Rate Forecast - 22 December 2025

1. Underlying assumptions:

2. The Budget signalled further fiscal (tax/spend) tightening across this parliament. Most tax changes take effect from 2028, while welfare and spending start from April 2026. Taken together, the timing of these announcements means the fiscal stance is likely to be slightly looser than expected for the next two years (with increased government spending), before tightening sharply from 2028 (with large tax rises).

   Despite the near-term looser fiscal stance, the new policies add little support for activity in 2026. Even before the Budget, economic data was pointing to a slower growth outlook. Meanwhile, disinflation has been evident and planned government actions on train fares and energy bills will also dampen inflation next year.

   The close vote in November to keep Bank Rate at 4% reflected pre-Budget uncertainty. With no major growth or inflation boosts in the Budget, a cut to 3.75% in December continues to look highly likely.

   Inflation fell to 3.6% in October. Business surveys point to weaker pricing power and household inflation expectations are easing, although they remain high. Wage growth is moderating amid rising unemployment and overall activity is flat. Confidence has been hit by the run-up to the Budget and a strong rebound seems improbable in the near term.

   Weak growth and softer inflation strengthen the case for dovish MPC members to push for further Bank Rate cuts, while undermining arguments of more hawkish members. There will still be questions over whether Government can deliver the fiscal tightening it set out, given a history of U-turns, and timing ahead of the next General Election. The December meeting will offer a clearer view of how divided the MPC really is.

   Risks to the growth and inflation outlook lie to the downside, which if crystallised may ultimately deliver lower Bank Rate than our central case.

   Lower inflation expectations and a tighter fiscal stance have helped bring down gilt yields, especially at the long end. Even so, sustained heavy borrowing across advanced economies, the DMO's move towards issuing more short-dated gilts and lingering doubts about the government's fiscal plans will keep short to medium yields above the levels implied by interest rate expectations alone.

   Forecast:

   Following the 2025 Budget, we continue to forecast a 0.25% Bank Rate cut in December to 3.75%.

   Continuing disinflation, rising unemployment, softening wage growth and low confidence suggests that monetary policy will be eased to stimulate activity ahead of incoming fiscal tightening post-2028.

   Arlingclose now expects Bank Rate to be cut to 3.25% by Q2 2026, with risks weighted to the downside.

   Medium and long-term gilt yields continue to incorporate premia for UK government credibility and global uncertainty. These issues may not be resolved quickly and we expect yields to remain higher than would normally be consistent with Bank Rate expectations.

   However, the lower path for Bank Rate maintains the downside risks to Arlingclose's gilt yield forecasts.

3. Arlingclose Economic & Interest Rate Forecast

   Yield/Risk		Current	Mar 26	Jun 26	Sep 26	Dec 26	Mar 27	Jun 27	Sep 27	Dec 27	Mar 28	Jun 28	Sep 28	Dec 28
   Official Bank Rate	Upside risk	0.00	0.25	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50
   	Central case	3.75	3.50	3.25	3.25	3.25	3.25	3.25	3.25	3.25	3.25	3.25	3.25	3.25
   	Downside risk	0.00	0.00	-0.25	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50
   3 month money market rate	Upside risk	0.00	0.25	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50
   	Central case	3.82	3.55	3.30	3.30	3.30	3.30	3.30	3.30	3.30	3.30	3.35	3.35	3.35
   	Downside risk	0.00	0.00	-0.25	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50	-0.50
   5 Year gilt yield	Upside risk	0.00	0.40	0.45	0.50	0.55	0.60	0.65	0.70	0.70	0.70	0.70	0.70	0.70
   	Central case	3.96	3.85	3.80	3.75	3.75	3.75	3.75	3.75	3.75	3.75	3.80	3.80	3.80
   	Downside risk	0.00	-0.50	-0.60	-0.70	-0.80	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85
   10 year gilt yield	Upside risk	0.00	0.40	0.45	0.50	0.55	0.60	0.65	0.70	0.70	0.70	0.70	0.70	0.70
   	Central case	4.52	4.40	4.35	4.30	4.30	4.30	4.30	4.30	4.30	4.30	4.35	4.35	4.35
   	Downside risk	0.00	-0.50	-0.60	-0.70	-0.80	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85
   20 year gilt yield	Upside risk	0.00	0.40	0.45	0.50	0.55	0.60	0.65	0.70	0.70	0.70	0.70	0.70	0.70
   	Central case	5.16	5.00	4.95	4.90	4.90	4.90	4.90	4.90	4.90	4.90	4.90	4.95	4.95
   	Downside risk	0.00	-0.50	-0.60	-0.70	-0.80	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85
   50 year gilt yield	Upside risk	0.00	0.40	0.45	0.50	0.55	0.60	0.65	0.70	0.70	0.70	0.70	0.70	0.70
   	Central case	4.74	4.65	4.60	4.60	4.60	4.60	4.60	4.60	4.60	4.60	4.65	4.65	4.65
   	Downside risk	0.00	-0.50	-0.60	-0.70	-0.80	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85	-0.85

Appendix C

Existing Investment & Debt Portfolio Position

Appendix D

Operational Boundary and Authorised limits

1. Operational boundary

   Operational boundary	2025/26 estimate (£m)	2026/27 estimate (£m)	2027/28 estimate (£m)	2028/29 estimate (£m)
   Debt	£185.0	£204.0	£217.0	£221.0
   Other long-term liabilities	£2.0	£3.0	£3.0	£3.0
   Total	£187.0	£207.0	£220.0	£224.0

2. Authorised limit

   Authorised limit	205/26 estimate (£m)	2026/27 estimate (£m)	2027/28 estimate (£m)	2028/29 estimate (£m)
   Debt	190.0	209.0	222.0	226.0
   Other long-term liabilities	2.0	3.0	3.0	3.0
   Total	192.0	212.0	225.0	229.0

Information about this strategy document

1. Information about this strategy document

   Author	Finance
   Version No.	2026/27
   Updated by	Financial Services Manager
   Date of update	***
   Description of changes to this version	Annual update in line with budget
   Document Status	To be approved