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This week, the Office for National Statistics announced a higher than expected estimate for annual inflation for July. Annual CPI climbed from 2.4% to 2.6%, against expectations of a fall to 2.3%. Smith explains, as colleague Schroders European economist Azad Zangana pointed out earlier this week, there is still a downward trend in UK inflation despite this surprise pick up. “Whilst short-term CPI and RPI inflation have somewhat exceeded market expectations this month, it should be noted that pension scheme liabilities are more affected by long-term inflation expectations. This month’s blip may have a small negative impact on UK pension scheme funding; however this is likely to be outweighed by long-term inflation expectations, which have fallen markedly over the last year – a positive for pension scheme funding. “That said, if falling inflation opens the door to more quantitative easing, we could see an offsetting increase in pension scheme liabilities if bond yields continue to fall as a consequence.”
This week, the Office for National Statistics announced a higher than expected estimate for annual inflation for July. Annual CPI climbed from 2.4% to 2.6%, against expectations of a fall to 2.3%.
Smith explains, as colleague Schroders European economist Azad Zangana pointed out earlier this week, there is still a downward trend in UK inflation despite this surprise pick up.
“Whilst short-term CPI and RPI inflation have somewhat exceeded market expectations this month, it should be noted that pension scheme liabilities are more affected by long-term inflation expectations. This month’s blip may have a small negative impact on UK pension scheme funding; however this is likely to be outweighed by long-term inflation expectations, which have fallen markedly over the last year – a positive for pension scheme funding.
“That said, if falling inflation opens the door to more quantitative easing, we could see an offsetting increase in pension scheme liabilities if bond yields continue to fall as a consequence.”
PLANSPONSOREurope Staff editors@plansponsoreurope.com