Inflation and gilt yields: unravelling the risks and opportunities

2022 saw rising inflation, soaring gilt yields, and a dramatic fall in global equities. How should pension investors adjust their portfolios to the new market environment?

In October 2020, with Covid-19 lockdowns still in place across much of the world, UK CPI inflation stood at only 0.7%, the Bank of England (BoE) base rate had been stuck at 0.1% for several months and UK 15-year gilt yields averaged 0.61%, close to all-time lows.

Only two years later, UK inflation would reach a more than 40-year high of 11.1%, the BoE was on the cusp of raising rates to 3% and 15-year gilt yields had soared to 4.8%, their highest level in nearly 15 years.

Most investment portfolios were not built for this economic environment.

This briefing focusses on how pension investors may look to adjust their investment portfolios to the new market environment.