Annuities and gilt yields rise as Fed talk of rate hikes with higher US inflation

15-year gilt yields chart - Based on figures for April 2024

Annuity Rates UK - April 2024 review

Providers increased enhanced annuities by +1.86% after a strong increase in gilt yields rising by 42 basis points to 4.70% by 25 April due to higher US inflation and the Fed talking of rate hikes before ending the month lower at 4.65%.

Higher gilt yields were driven by US consumer price index (CPI) inflation increasing from 3.1% in January to 3.2% in February and then 3.5% in March.

Data showed the US economy was growing faster than expected with 303,000 new jobs added when 200,000 was forecasted and the Federal Reserve has been talking of a possible rise in interest rates.

The expectation is for only two cuts in interest rates this year from the Fed sending treasury notes and 15-year gilt yields to record highs for this year.

In the UK CPI inflation reduced from 3.4% in February to 3.2% in March with analysts forecasting the first interest rate cut in the August 2024 meeting.

Find related news here:
Gilt yields at record high after strong US data and dashed rate cut hopes
Annuity rates can recover 3pc as strong US economy send yields higher

Providers of standard annuities increased annuity rates by an average of +0.94% this month and we would expect rates to increase by +2.76% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers increased their rates by an average of +1.86% and we would expect rates to increase by +1.84% in the short term if yields do not fall.

Fig 1 below shows the annuity rates changes for the whole market and the proportion that have either increased, decreased or or did not change. It also shows the range of the changes of the annuity rates over the last month:

Annuity Rates Changes Increase No change Decrease   90%   2%   8% Increases of: max 4.3 %   Decreases of: max 0.5 %

Fig 1: Annuity rate changes for the whole market

Fig 2: Change in standard rates last month compared to gilt yields

Fig 3: Change in enhanced rates last month compared to gilt yields