Gilts are sterling bonds issued by the Bank of England and listed on the London Stock Exchange. They carry a very low risk of default - the government has never missed a payment. Index-linked gilts were first introduced in 1981 to act as a hedge against inflation for the pension funds, and other types of investor soon picked up on them. By the end of March 2002 they made up 26% of the government's gilt portfolio.
With an index-linked gilt, both the income from the semi-annual coupon payments and the price at which it will be redeemed when it matures are adjusted to take account of the movement in retail prices. The way this is done is by raising and lowering the redemption price in line with the retail prices index (RPI) so that both the income and the capital retain their real value - although in practice, they do not match it exactly.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Revolut launches its first stocks and shares ISA with BlackRock and Vanguard ETFsA year after getting its UK banking licence, Revolut is now launching its first stocks and shares ISA with a suite of exchange-traded funds (ETFs) from BlackRock and Vanguard.
-
What does Trump’s ‘Big Beautiful Bill’ mean for the US economy?Donald Trump’s budget bill will slash taxes, but is expected to add at least $3 trillion to US national debt
-
Bank of EnglandGlossary The Bank of England is the UK's central bank. It started life in 1694 as a private bank set up by London merchants as a vehicle to lend money to the government and to deal with the national debt.
-
Monetary policy
Glossary Monetary policy is about exercising control over the money supply (the amount of money circulating in the economy) with the aim of influencing the economy.
-
Money supply
Glossary Money supply is simply the amount of money available in the economy.