Associated British Foods, which owns Primark, has revealed that its expected year end pension scheme deficit has plummeted to £200m.

In its recent trading statement, the group noted that its struggling pension scheme is largely a result of record low gilt yields following the UK’s decision to leave the EU. These long-term bond yields are used to value defined benefit pension obligations.

While ending in a small surplus last year, ABF’s deficit caused shares in the group to fall by 6 per cent to £29.58.

Furthermore, the group said that the fall in the sterling would have “both positive and negative effects on the group’s operating profit next year”. This is because “there would be an adverse transactional effect on the profit margin on Primark UK sales, a favourable transactional effect on British Sugar’s margins and a translation benefit on group profits earned outside the UK,” it said.

ABF also noted that like-for-like sales at Primark, excluding store openings, closure and exchange rate movements, will fall by 2 per cent due to a mild Christmas and cold spring, keeping shoppers off the high street.

XTB market analyst David Cheetham said: “The drop in yields on gilts has heaped pressure on several already vulnerable pension schemes with Primark owner, Associated British Foods, the latest company to feel the squeeze. The return on UK government bonds, which make up a large portion of certain pension funds’ investments, has plummeted in the past few months since Britons took the momentous decision to leave the EU. Following the Bank of England's decision at the start of August to cut interest rates to all-time lows and expand their asset purchase programme, fixed income yields have declined substantially.

“However, a recent spate of positive auctions for the bonds have allayed fears of their scarcity failing to meet the new found demand, whilst upbeat economic indicators have also contributed to the mild recovery in yield seen over the past few weeks. Having said that, a significant rise in yield remains unlikely given the accommodative stance adopted by the BoE - which is unlikey to change for the foreseeable future- and pensions with a sizeable amount of their assets in these instruments will likely continue to struggle to balance their liabilities going forward.”

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