Kingston Council's treasury advisors, MUFG, anticipate a decrease in short, medium, and long-dated interest rates over the next one to two years, according to their latest forecast updated on 11 August. However, MUFG noted that there are upside risks in respect of the stickiness of inflation and a continuing tight labour market, as well as the size of gilt issuance.
The forecast was presented in the Treasury Management 2025-26 Mid Year Report discussed at the Audit, Governance and Standards Committee meeting on Thursday, 13 November 2025.
The report detailed the council's treasury management activities during the first six months of the financial year, which included debt and cash management. During this period, the council operated within the relevant treasury and prudential indicators set out in the Council's Treasury Management Strategy Statement for 2025/26. The council has been deferring external borrowing where possible while interest rates are at elevated levels, and has instead been using internal investment balances in lieu of external borrowing (internal borrowing). Investments totalling £227m were placed, whilst the total sum of maturities was £240m. The amount of deposits held in short term treasury investments at 30 September 2025 was £49.8m.
Treasury management encompasses the management of the local authority's borrowing, investments, and cash flows, along with the effective control of associated risks. The council appointed MUFG as its treasury advisors, and their service includes assisting the council in formulating a view on interest rates.
The Treasury Management 2025-26 Mid Year Report noted that the Bank of England does not anticipate CPI getting to 2% until early 2027, and with wages still rising by just below 5%, it was no surprise that the September meeting saw the MPC vote 7-2 for keeping rates at 4% (Dhingra and Taylor voted for a further 25bps reduction).
The MPC's 7-2 vote to keep rates at 4% suggests the Bank still thinks interest rates will fall further, but possibly not until February, which aligns with both MUFG's and that of the prevailing market sentiment.
The Bank also announced that they would only shrink its balance sheet by £70bn over the next 12 months, rather than £100bn. The report notes that market reaction to the November Budget is likely to be the decisive factor in future gilt market attractiveness to investors and their willingness to buy UK sovereign debt. The repetition of the phrase that a gradual and careful
approach to rate cuts is appropriate suggests the Bank still thinks interest rates will fall further, but possibly not until February, which aligns with both MUFG's and that of the prevailing market sentiment.
