Some good news on the annuity rates front. Gilts prices are falling and gilt yields are climbing. Unfortunately, this was after the worse than feared drop in the UK economy was revealed earlier yesterday. Following the 0.2% dip in the economy, which was actually double the 0.1% analysts had estimated – gilt yields climbed. And when gilt yields climb, so do annuity rates (usually).
After the Office for National Statistics (ONS) released its Gross Domestic Product (GDP) figures to the market, bid yields improved on the benchmark 10-year gilt, from 2.151% to 2.174%, before settling back to 2.159% (according to data released from Tradeweb). Experts suggest that the GDP figure is a sign of things to expect this year, with Capital Economics’ Vicky Redwood warning that the UK economy is likely to shrink somewhat during most of the year. Redwood suggests that she expects to see a further significant £75bn of quantitative easing (QE) to be announced in February to tackle the slowdown in the economy.
Sterling also fell back against various major currencies after the data was released. It was off $0.0046 against the dollar to $1.5581, and moved slightly lower against the euro to €1.20. Do we actually know what to expect next in these turbulent times? Things do seem to change quickly. We’re even expecting a rise in pump prices for diesel because a refinery has shut down. Will that effect inflation, and what is the knock on effect?
Gilt yields increasing does normally mean annuity rates increase, but we really need to see a long term trend, and I’m not sure if we will. Do we want negative or flat growth instaed of the positive growth we’ve had? I’ve just been listening to the Jeremy Vine show on Radio 2 about this very subject, and, as usual, all types of different views are coming in. Some say that a flat economy like Japan’s would be good for the UK, with less greed. Would it? I’m sure I don’t know. But flat or negative growth could be good for gilt yields and that could be good news for annuity rates, and that could be good news for you if you’re likely to be buying an annuity soon for your important retirement income.
