Debt agency contemplate change in index for index-linked bonds

Britain's debt agency the Debt Management Office (DMO) has said that it has not dismissed the option of tying future index-linked bonds to consumer price inflation (CPI), rather than the usually higher rate of retail price inflation (RPI).

The DMO has, until now, been cautious over multiple changes to the index used; another index was introduced by the Office for National Statistics back in January. The ONS announced its decision to carry on using RPI, but whilst accommodating expected statistical revisions with a new index, RPIJ.

This was following a three-month review of RPI use, which recognised the gap between RPI and CPI that results from the different methods of calculating the average price of goods and services, known as the "formula effect".

Index-linked bonds protect investors from changes in an underlying index. RPI usually increases more quickly than CPI (which is based on a basket of goods), is calculated differently and excludes some kinds of spending.

DMO chief executive Robert Stheeman said at a financial conference that future CPI-linked bonds were still a possibility, "just not this year".