Interest Rates

The treasury budget assumes a budget rate of 4.75% on new debt. The Bank of England reduced the Bank Rate to 4.25% in May 2025. Mitsubishi Financial Group (MUFG), the Council’s treasury advisor, forecasts further 0.25% cuts in December 2025 and March 2026, ending the year at 3.75%. The pace of interest rate cuts may slow over the remainder of the year if inflationary pressures persist.

In April 2025, Consumer Price Inflation (CPI) rose to 3.5%, up from 2.6% in March. Core CPI, which excludes energy, food, alcohol, and tobacco, increased to 3.8% from 3.4%. The Bank of England expects inflation to peak at 3.7% by September, driven by smaller reductions in energy prices and rising regulated costs such as water bills, before gradually returning to its 2% target in the medium term. Growth for 2025 has been upgraded from 0.7% to 1.0%, following a stronger than expected performance of 0.7% in Q1 2025. The effect of increased employer NIC contributions with effect from April 2025 and President Trump’s global tariff increases may dampen UK and global growth expectations.

Cash Flow

The Council has a legal duty to ensure sufficient liquidity to meet its liabilities as they become due. Close monitoring of cash flow will ensure any systemic and unplanned shortfall in revenue is identified at an early stage, allowing corrective action to be taken to revenue and the capital programme.

The Council holds £23.350m as at 30 May 2025 in short-dated cash. Additionally, there is an allocation of £5.041m in pooled property funds; however, this will reduce once the full redemption of Lothbury Property Trust has been completed, which will total £4.507m. Bexley holds group loans to BexleyCo Limited £8.420m in development loans and £13.382m in equity and has a shareholder loan of £0.205m.

Current forecasts suggest there may be a need to borrow in the second half of 2025/26, depending on slippage in the capital programme that may impact the amount of borrowing needed in the year.

Interest rates on Council borrowing for BexleyCo may be impacted by bank rate movements. However, this will have a neutral impact on the carry rate of existing fixed loan capital.

Borrowing Strategy

The Council currently holds £230.615m of Public Works Loan Board debt, of which £6.031m is maturing in 2025/26. The Council borrowed £10.000m in the last financial year 2024/25.

Current interest rates forecast by MUFG for five-year, ten-year and 25-year PWLB Money are at 4.90%, 5.20%, and 5.70% respectively, and are forecast to reduce to 4.60%, 4.90%, and 5.40% by the end of the financial year.

If short to medium-term financing is currently considered more favourable, the Council will take on additional PWLB loans to fund capital expenditure. There is also the opportunity to take short-term cashflow loans through other local authorities or banks.

For the longer term, officers will work in conjunction with the MUFG to conduct a comprehensive review  of future capital spending to  financing needs.