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For Professional Clients and, in Switzerland, for Qualified Investors only. In Israel for Sophisticated Investors only.
English
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IDEAS AND KNOWLEDGE TO INSPIRE YOUR INVESTMENTS THINKING
28 November 2019

RIP for the RPI?

While it is increasingly seen as a flawed measure of inflation, RPI continues to be calculated (reluctantly) by the UK Statistics Authority and used to determine payments on index-linked gilts (and student loan debt and rail fare increases amongst other things).

 

Despite some recent delay in making a formal decision, reform of RPI is, in our view, still warranted and likely before 2030.

 

It would appear only a matter of time before consumer price index-linked or CPIH (CPI including housing costs) bonds are launched by the UK Debt Management Office. More clarity should emerge next year in the consultation period.

 

Change could be positive for the UK pension sector, which invests heavily in gilts.

 

Overall for defined benefit pension providers a reduction in RPI would be helpful – their index-linked liabilities (close to 100%) exceed their index-linked assets (and their deficits would likely come down if a lower inflation rate were used).

 

Howard Cunningham, portfolio manager, Newton Investment Management.

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Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.

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