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£220Bn gilt spree to bring volatility for annuities

The Government’s issue of £220bn in extra gilts could lead to volatility in annuity rates for some time to come, says annuity provider LV=.

Head of annuities Matt Trott says the price of gilts fell in response to the Budget move. He says gilt yields could rise, which could lead to an improvement in annuity rates, depending on the relationship between the Government and the Bank of England.

Trott says: “The Bank of England is using quantitative easing to buy up gilts and, because there will be two different departments doing different things, I think we will see volatility in the annuity market for some time.

“It will depend on how the Government and Bank of England talk to each other across the Square Mile and how the new gilts that are issued match the gilts that the Bank of England is buying.”

Smith & Williamson director Mike Fosberry says: “There are two schools of thought, the deflationary school or inflationary school. I sit in the inflationary school. If the Govern- ment has issued extra gilts as part of quantitative easing, the issuance of further gilts is part of this process and will ultimately lead to higher inflation. Longer-term gilts will rise, so annuity rates will rise, subject to whether people will live longer.”

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