Falling inflation gives the bank the green light for further rounds of printing money which is then used to buy bonds (Gilts).
(PRWEB UK) 6 September 2012
Recent drops in the rate of inflation could see more quantitative easing by the Bank of England economists have warned. This could have a dire effect on annuity rates as a result as it has been found cuts in annuity rates occur when prospective quantitative easing is anticipated from the Bank of England.
Falling prices for key items such as petrol and clothing contributed to downward pressure on the UK’s rate of inflation.
The recent falls have been unexpected and have gone against assumptions there would be no change.
The Bank of England recently extended its quantitative easing asset-purchase programme to a massive £375bn despite warnings this could deteriorate pension schemes and force various companies to plug rocketing deficits.
Further easing and monetary stimulus seems likely as inflation rates continue its downward trend.
High inflation is the biggest danger when a country prints money and history has demonstrated serious examples of how thing can go drastically wrong when too much money is printed. Post Great War Germany and in recent years Zimbabwe are good examples.
The Bank of England therefore are keen that the rate of inflation is not increasing when quantitative easing is called upon.
Falling inflation gives the bank the green light for further rounds of printing money which is then used to buy bonds (Gilts). Because there is higher demand for gilts on the market the yield on gilts drops accordingly and since these are the mainstay of annuities, rates suffer as a consequence.
Scott Mullen of My Pension Expert the annuity specialists said “Further quantitative easing along with the European debt crisis and low interest rates have created the perfect storm for gilt yields and as a result we are now seeing this seriously affect annuity rates. People considering their retirement options should take care to shop around and take advice on alternatives to the traditional annuity route”.
My Pension Expert is a company of Diploma Qualified Independent Financial Advisors who specialise in the at retirement market.