Inflation and interest rates

With the rate of inflation rising above the Bank of England target and predicted to rise further it is widely expected that interest rates will also rise in the near future. What is the financial impact on the Council of a rise of one, three and five percentage points in the rate we are charged, based on current and predicted future levels of borrowing?

Response from the Cabinet Member for Finance

The majority of the County Council’s existing debt is at fixed interest rates and there will be no impact from an increase in interest rates. The Council’s Medium term Financial Strategy includes a budget planning assumption of borrowing of £80m for 2021/22, 2022/23 and 2023/24 based on interest rates of 2.5%, 2.7% and 2.8%. As can be seen from the increase in interest rates over the period, the Council is already planning for an increase in interest rates. The Council’s most recent borrowing in June has been below 2%. Any changes to interest rates will be reflected in future revisions to the Medium Term Financial Strategy.  Using the planned £80m borrowing for 2021/22, a one, three and five percentage points increase would result in additional interest costs of £0.8m, £2.4m and £4m per annum.