Cabinet
Full Council
Overview & Scrutiny
06 February 2012
22 February 2012
15 February 2012
Appendix C
Arlingclose’s Economic and Interest Rate Forecast
•
Conventional monetary policy has become largely redundant; the Bank of England and the
US Federal Reserve have signalled their respective official interest rates will be on hold
through to the end of 2012. We think that it could be 2016 before official UK interest rates
rise.
•
The UK's safe haven status, the direct effect of QE and minimal prospect of an increase in
policy rates are expected to keep gilt yields at their lows in the near term.
•
A disorderly outcome to the Eurozone sovereign crisis remains a key economic, credit and
political risk.
Underlying Assumptions:
•
Financial market stress is expected to remain a feature of 2012. Rates within Interbank
markets (where banks fund the majority of their day to day operations) have continued to
climb. This dynamic was a characteristic of the 2008 banking crisis and whilst the authorities
have flooded the markets with liquidity, it is still a strong indicator of market risk.
•
Inflation has moderated back to 4.8% in November. CPI is expected to drop gradually back
towards the 2% target as the January 2011 VAT increase, the surge in oil prices and the
large energy price hikes fall out of the twelve month comparison.
•
Recent data and surveys suggest that since the summer the UK economy has lost the
admittedly fragile momentum. Business and consumer surveys point to continued weakness
in coming months. Public spending cuts, austerity measures, credit constraints, low
business and consumer confidence could result in the economy stalling (Q3 excepted, when
the 2012 Olympics will provide a temporary boost) and most likely pressure the Bank of
England to provide further QE.
Cabinet
Full Council
Overview & Scrutiny
06 February 2012
22 February 2012
15 February 2012
•
Faltering global growth will not be helped by the considerable uncertainty and expansion of
risks presented by the crisis in the Eurozone and gridlock in the US going into an election
year. The knock-on effects could in turn weigh on growth in China and emerging market
countries.
•
Gilt supply is expected to be higher in 2012-13 than earlier forecast by the Treasury.
However, over the short-term, gilts will retain their safe-haven status as euro area contagion
risks grow.
•
Sizeable European bond redemptions and refinancing (Italy in particular) in the first half of
2012 remain significant challenges. Headwinds to fiscal convergence and treaty changes
could intensify downgrade pressures on the AAA core nations as well as peripheral
countries. The effectiveness of the European Financial Stability Fund (EFSF) may prove
limited, increasing the possibility of a sovereign failure or the break-up of the euro area.
Cabinet
Full Council
Overview & Scrutiny
06 February 2012
22 February 2012
15 February 2012
Appendix C
Recommended Sovereign and Counterparty List
Group Limits – For institutions within a banking group, the Council executes a limit of 1.5 times
the individual limit of a single bank within that group.
Instrument
Country
/Domicile
Counterparty
Maximum
Counterparty
Limit
£3m
Maximum
Group Limit
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
UK
Santander UK Plc (Banco
Santander Group)
UK
Barclays Bank plc
£3m
£4.5m
UK
HSBC Bank plc
£3m
£4.5m
UK
Standard Chartered Bank
£3m
£4.5m
UK
Bank of Scotland plc (Lloyds
Banking Group)
£3m
£4.5m
UK
Lloyds TSB Bank plc (Lloyds
Banking Group)
£3m
£4.5m
UK
Royal Bank of Scotland plc (RBS
Group)
£3m
£4.5m
UK
National Westminster Bank plc
(RBS Group)
£3m
£4.5m
UK
Nationwide Building Society
£3m
£4.5m
Australia
Australia and NZ Banking Group
£3m
£4.5m
Australia
Commonwealth Bank of Australia
£3m
£4.5m
Australia
National Australia Bank Ltd
(National Australia Bank Group)
£3m
£4.5m
Australia
Westpac Banking Corp
£3m
£4.5m
Canada
Bank of Montreal
£3m
£4.5m
Canada
Bank of Nova Scotia
£3m
£4.5m
£4.5m
Cabinet
Full Council
Overview & Scrutiny
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
Term
Deposits/Call
Accounts
06 February 2012
22 February 2012
15 February 2012
Canada
Canadian Imperial Bank of
Commerce
£3m
£4.5m
Canada
Royal Bank of Canada
£3m
£4.5m
Canada
Toronto-Dominion Bank
£3m
£4.5m
US
JP Morgan
£3m
£4.5m
Note:
This list could change if, for example, a counterparty / country is upgraded, and meets other
creditworthiness measures. Alternatively, if a counterparty is downgraded, this list may be
shortened.
Cabinet
Full Council
Overview & Scrutiny
06 February 2012
22 February 2012
15 February 2012
Appendix D
Treasury Management Policy Statement
1.
The Council defines its treasury management activities as:
The management of the Council’s investments and cash flows, its banking, money
market and capital market transactions; the effective control of the risks associated with
those activities; and the pursuit of optimum performance consistent with those risks.”
2.
This Council regards the successful identification, monitoring and control of risk to be the
prime criteria by which the effectiveness of its treasury management activities will be
measured. Accordingly, the analysis and reporting of treasury management activities will
focus on their risk implications for the organisation, and any financial instruments
entered into to manage these risks.
3.
This Council acknowledges that effective treasury management will provide support
towards the achievement of its business and service objectives. It is therefore
committed to the principles of achieving value for money in treasury management, and
to employing suitable performance measurement techniques, within the context of
effective risk management.”
4.
The Council’s borrowing will be affordable, sustainable and prudent and consideration
will be given to the management of interest rate risk and refinancing risk. The source
from which the borrowing is taken and the type of borrowing should allow the Council
transparency and control over its debt.
5.
The Council’s primary objective in relation to investments remains the security of capital.
The liquidity or accessibility of the Authority’s investments followed by the yield earned
on investments remain important but are secondary considerations.