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Spotlight on index-linked gilts and UK inflation

Insights

M&G Investments

16/09/2019

Proposed changes to measuring UK retail price inflation have had significant influence on the prices of long-dated index-linked gilts.

  • The Chancellor of the Exchequer has delayed a proposed realignment of UK RPI with a consumer price measure (CPI-H) until at least 2025.
  • CPI-H has historically been about 1% lower than RPI, thereby reducing future cashflows from index-linked gilts.
  • Anticipating the changes has had an immediate influence on the prices of ILGs maturing after 2025. Using non-gilts to access the UK index-linked market may be attractive.

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