Interest rates continue to rise as inflation rises again
Interest rates continue to rise as inflation rises again
23 Mar 2023
The latest CPI figures showed inflation rising to 10.4%, marking the first inflationary rise since October 2022.
Inflationary pressures remain a concern, highlighted by the Bank of England’s decision this afternoon to increase rates by a further 0.25% in spite of the ongoing global banking concerns. This is now the 11th consecutive interest rate rise since December 2021. Since the first interest rate rise in December 2021, XPS Pensions’ DB:UK tracker estimates that UK pension schemes have reduced in value by approximately 35% or c. £800bn. Overall, funding level improvements have also been extremely positive in spite of high levels of observed inflation over the period, adding c.£100bn to scheme liabilities.
Simeon Willis, Chief Investment Officer at XPS Pensions Group, commented: “Typically, a rate rise coupled with the prospect of falling long-term inflation usually spells good news for pension schemes. However, over March we have seen a reduction in long-term gilt yields as expectations over future rates rises have been pared back and so many under hedged schemes will have seen funding levels deteriorate over the month despite this rates rise. Elsewhere, and given the current turmoil within the banking sector, pension schemes will also be keeping a close eye on the financial markets in the hope that this announcement does not have an adverse impact on equity and credit markets, which is the other key driver in scheme funding levels.”