Inflation could blow multi-billion pound hole in UK finances

High inflation could cost the British Government tens of billions of pounds in extra interest payments because so much of its debt is index-linked.

More than one-third of gilts – excluding those bought by the Bank of England – are linked to the retail price index measure of inflation.

As a result, if inflation is one percentage point higher over the next five years, payments on those bonds will rise by £26bn, the National Audit Office has warned.

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