FTSE350 companies are set to see £20bn wiped off their balance sheets as a result of the Office of National Statistics (ONS) announcement that the existing method of calculating RPI is to be retained, Mercer said.

The announcement by the ONS has come as a relief for individuals with pensions and assets with payouts linked to the RPI. However FTSE350 DB schemes had expected that a change in the RPI calculation methods would result in lower levels of increase in the RPI over the long term. Mercer stated that “these expectations have resulted in the market pricing in a reduction in implied long-term RPI expectations of around 0.3 per cent”.

Inflation swap rates increased by around 0.3 per cent to 0.4 per cent and long-dated real yields fell with the 35 year index-linked gilt real yield falling initially by around 0.25 per cent.

Mercer senior partner Ali Tayyebi said: “Inaction has meant an increase in market implied inflation which has increased pension scheme liabilities by around £20bn. Companies with rules that prevented them from moving to the CPI must feel like they sinned in a former life.”

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