22OCT

Index-linked 2049 gilt cleared at 3.58 times cover

1 min read

16:23UTC

The Debt Management Office sold £900m of the 1⅞% Index-linked Treasury Gilt 2049 on 3 September at a real yield of 2.496%, with £3,220m bid.

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EconomicDeveloping

Key takeaway

A 2.496% real yield locks in a return above inflation until 2049.

The UK Debt Management Office sold £900m of the 1⅞% Index-linked Treasury Gilt 2049 on 3 September 2026, took £3,220m of bids for a cover of 3.58 times, and struck a real yield of 2.496%⁠¹.

Striking the line at 2.496% commits the government to that return above whatever inflation does between now and 2049, because an index-linked gilt pays out more as prices rise and a real yield is what a lender earns on top of inflation rather than including it. The taxpayer funds that protection for twenty-three years, until the line matures in 2049.

Roughly a quarter of the outstanding gilt stock moves with prices, so inflation lifts the payments on lines like this one instead of eroding them. A government whose debt is fixed in cash can let inflation shrink the real burden of it. Britain can do that to about three quarters of the stock, and each index-linked sale adds a little to the quarter where the trick does not work.

Deep Analysis

In plain English

Most government debt pays a fixed amount of interest whatever happens to prices. This type, called index-linked, is different: its payments rise automatically if inflation rises, protecting the investor but also meaning the government cannot quietly reduce the real cost of this debt through inflation the way it can with ordinary borrowing. The government sold £900m of this kind of debt on 3 September, and investors bid £3,220m for it, well over three times as much as was on offer.

What could happen next?

Meaning
Roughly a quarter of the UK's gilt stock is index-linked, which structurally limits how much an inflation-led reduction in the real debt burden could achieve.

Sources:UK Debt Management Office

Mentions:Debt Management Office →

First Reported In

Update #3 · Debt ratio fell; borrowing missed by £2.3bn

UK Debt Management Office· 3 Sept 2026

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Causes and effects

This Event

Index-linked 2049 gilt cleared at 3.58 times cover

Every index-linked sale enlarges the part of the debt that inflation cannot erode.

Led to

30-year gilt passes 6%, last seen 1998

An early-September index-linked sale drew 3.58 times cover, above the 3.07 times of 22 September.

Occurred 7 Oct 2026

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Different Perspectives

Pension Protection Fund

Acting chief actuary Aaron Pang put the rise to 135.0% funded down to liabilities falling 2.1% against a 1.0% fall in assets, reflecting higher gilt yields. On Lowdown's reading, the yields that lift the Treasury's interest bill leave 4,838 company schemes with a £280.7bn surplus that does not reduce state borrowing.

Torsten Bell

The Labour figure wrote on 14 October that the IMF's October figures show the fastest fiscal consolidation in the G7. The IMF forecasts the UK deficit falling from 3.8% of GDP in 2026 to 1.4% in 2031, a squeeze still to be delivered through taxes and spending.

Tax Justice UK

The left-leaning campaign group says ten tax reforms would raise over £60bn a year for public services, and on 22 October asked why higher taxes on extreme wealth remain politically difficult. It offers the tax-led exit to the IEA's cuts; the £60bn is its own claim, not an official costing.

Institute of Economic Affairs

The free-market think tank's Alternative Budget of 19 October would suspend the state pension triple lock for three years, freeze welfare in cash terms and move tax onto a wider VAT. It claims the day-to-day budget returns to surplus in 2027-28, its own projection rather than an official costing.

Resolution Foundation

The living-standards think tank said welfare spending ran about £2.5bn above expectations in September, City AM reported on 21 October, and its economist Greg Thwaites urged targeted energy support. Its figure lands as a Chancellor who calls welfare cuts a moral duty finalises the 28 October Budget.

Institute for Fiscal Studies

Director Helen Miller said a steady-as-she-goes Budget is not an option, with the IFS putting 2029-30 headroom at about £20bn, The Independent reported on 12 October. The IFS puts the cost of avoiding cuts and funding higher defence at around £35bn of tax rises or benefit cuts, more than any headroom estimate in circulation.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.