Investment Perspectives - spring 2020
02 Jun 2020
*This article is from our Spring 2020 edition of Investment Perspectives*
Coinciding with the UK Budget on 11 March 2020, the much-anticipated consultation on reforming the Retail Price Index (RPI) was released. The outcome of the Consultation may conclude many months of speculation on the future of RPI, initially triggered by the House of Lords Economic Affairs Committee’s January 2019 report, Measuring Inflation, which recommended that statistical deficiencies with the RPI be addressed.
Issues with RPI have been known for many years and some may recall a previous consultation launched in 2012 on a similar topic, which created a lot of uncertainty and eventually concluded with no change being made to the calculation of RPI.
Although many believe that reforming RPI is inevitable, exactly how this is done matters greatly because it could result in a significant transfer in value from index-linked gilt holders to the UK Treasury - or not. Hence our view is that it's important index-linked gilt holders respond to the consultation.
In this article, we look at:
- The proposed reform;
- Market pricing;
- What might be the eventual fate of RPI?; and
- The implications for pension schemes