A lot of water has flowed under Westminster Bridge since a UK chancellor was able to stick to their plans for a year.
Rachel Reeves didn’t even manage that.
Since her Budget last October – and contrary to previous aspirations to return to a once-a-year cadence – we’re told the numbers had already changed enough that something had to be done.
And so in the Spring Statement we learned that while years-away economic growth will now apparently be higher, this year’s forecast has been halved: to GDP growth of 1%.
As Paul Johnson of the Institute for Fiscal Studies noted:
The fact that a fairly run-of-the-mill change to the forecast forced her to cut her spending plans reflects the tiny amount of headroom she chose to leave against her targets last October.
Indeed I’d argue we’re seeing ‘iron rule theatre’, where the chancellor pretends she can micro-manage the fine margins of tax-and-spending outcomes, even as the world rages around her.
In reality there is no headroom outside of a Number 11 tweak-and-refresh in Excel:
Having tied her own hands before last year’s election by ruling out touching the big revenue-raising levers, her October Budget tax grab foolishly targeted a business sector already battered by successive waves of crisis.
The resulting National Insurance hikes will almost certainly cause employment to be lower – by making jobs more expensive from April – and it’s also hit confidence for six.
And with the OBR downgrading 2025 growth from 2% to 1%, there’s no gung-ho economy riding to the rescue.
The West Wing
On the other hand, the man in the White House and his ripping up of the rulebook is rattling markets and business leaders globally, too.
Along with his counterpart in Moscow, Trump is forcing Europe to rethink post-war norms on everything from defence spending to borrowing costs to trade partnerships – not to mention who has our back in a nuclear showdown.
Now some might say this was all predictable when Reeves rose to speak last October. A Trump victory in November’s US election looked near-certain by then.
But I’d argue that even so, all we could be sure of was a return to government by reality TV show plot twist.
And as things have turned out this season is even crazier than the last one. (Where’s Mike Pence when you need him?)
The fact is nobody viewing this drama agrees on where we’ll end up on tariffs and Ukraine – not even Trump’s acolytes – let alone factors beyond his immediate control but absolutely subject to his whims, such inflation and bond yields.
Neighbours
Perhaps Reeves’ technocratic reforms will deliver growth eventually. The construction industry seems genuinely impressed by Labour’s push on planning, for instance.
In fact across Europe a welcome side effect of the White House telling the continent it’s on its own could be a slaying of sacred cows on regulation, especially in the tech sector.
But honestly, it’s hard to see the economy catching fire anytime soon.
That’s not to say it won’t. Maybe Germany taking the brakes off spending or an end to the immediate conflict in Ukraine could revive animal spirits. Or perhaps inflation dying a speedier death than forecast, and rates falling faster.
But continuing to bump along the bottom seems the most probable outcome.
And then there’s Brexit, which everyone else has given up on mentioning.
The UK economy is £100bn to £140bn smaller than it would have been, thanks to Brexit.
Hence government tax receipts are £30-40bn lower every year as as a consequence.
Recall: the fiscal headroom Reeves is so concerned about is only £10bn.
When taxes rise again or welfare is cut, remember Brexit. It’s impact doesn’t go away just because we’re bored of it or because other stuff happened too.
Brexit is permanent grit in the UK’s economic engine.
Auf Wiedersehen, Pet
Lots of pundits are warning us to expect more tax hikes later this year.
If so, it’ll mean more stealthy stuff like freezing personal allowances for longer or cutting the ISA thresholds. Raising headline tax rates after all this would be suicidal.
But really, the cupboard is bare. Allowances for capital gains and the like have already been cut to the bone. The inheritance tax push on pensions has happened. Maybe the CGT rate could be hiked again, but that won’t raise much money.
You can see why many on the left want a wealth tax (link below) but non-doms and other wealthy types are already fleeing the UK.
Poorer people will be feeling the worse of it, but the middle-class is clearly saying enough is enough on taxes, too.
Eldorado
If I were Reeves I’d maybe cut stamp duty on housing transactions to a flat 1% and go harder and faster on home building.
There’s urgent need here, and a solid growth multiplier from an old-fashioned housing boom. If more housing availability kept the lid on house price growth, so much the better.
It’s not clever or pretty but it’s worked before. Short of rejoining the EU by Christmas, I can’t see much else delivering a speedy shot in the arm.
Reeves did announce a £13bn infrastructure package in the Spring Statement. This includes £625m to train up to 60,000 skilled construction workers.
Even so, getting 1.5m homes built anytime soon will require a wartime push to ready the missing bricklayers, carpenters, and plumbers. Such combined-arms coordination seems beyond our modern politicians.
So stagger on we must.
Look out for your own future prosperity – not least by filling your ISAs and your pensions – because you can be sure that nobody else is.
More Spring Statement bits and pieces:
Government confirms it’s looking into reform of cash ISA allowances – Morningstar
Five things we learned from the Spring Statement – Which
Brace for tax rises in the autumn? [Search result] – FT
Self-employed given harsher penalties for late tax payments – This is Money
NS&I boosts targets in Spring Statement – This is Money
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Want to beat the market? Then you must do something different to the market. Both in terms of tactics and strategy, and in that your resultant portfolio will look different to the market and so deliver – for good or ill – differentiated returns.
Of course, most professionally-managed funds do not beat the market, nor the index trackers that simply try to match it.
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Do you have any NS&I Index-linked Savings Certificates? Are they approaching maturity? Are you wondering what to do with them?
The product’s attractions have deteriorated in recent years, so renewing your certificates may not be the no-brainer it once was.
On the other hand, inflation is back and proving stickier than a toddler wielding jammy doughnuts. And if that’s a concern for you then there are still good reasons to keep even today’s atrophied Index-Linked Saving Certificates in your portfolio.
Let’s recap the main features of Index-Linked Certificates. We’ll consider the pros and cons of renewal after that.
How do NS&I Index-linked Saving Certificates work?
National Savings and Investments’ Index-Linked Saving Certificates are a unique fixed-term savings product.
The important features are:
Protection against inflation – Index-linked Savings Certificates safeguard your savings from inflation. The amount you have in them grows in line with the UK’s Consumer Prices Index (CPI), maintaining your purchasing power as prices rise.
Deflationary floor – Unlike index-linked gilts, your certificate’s value will not shrink if the index declines during the term. Instead, your savings’ nominal value remains unchanged if deflation occurs. In fact it will actually grow in real-terms and you’ll still receive interest on top.
Tax-free – Both the inflation-linked returns and the fixed interest are exempt from UK income tax and capital gains tax. Certificates’ tax-free status means they don’t take up room in your ISA or SIPP nor eat into your personal tax allowances. You don’t need to declare them or do any tedious paperwork.
Government guaranteed – National Savings and Investments is the UK government savings bank. Consequently, Index-linked Saving Certificates are as safe as investing gets because they’re 100% backed by HM Treasury.
You cannot lose money – Index-linked Savings Certificates are not potentially subject to capital losses, unlike bonds. In this sense they act like other cash savings products.
Fixed terms – Your money is locked up in Index-linked Saving Certificates for fixed terms of two years, three years, or five years. (Two-year terms are only available if you roll over an existing two-year certificate.)
Fixed interest rate – Currently you get 0.01% on top of the index-linked inflation adjustment. This is a fixed rate that is guaranteed not to change during your term.
No longer available – You can only renew existing Index-linked Saving Certificates when they mature. The Government hasn’t made new issues available since 2011! It shows no sign of changing course. This means Certificates can’t be replaced if you cash them in.
NS&I index-linking explained
With Index-linked Saving Certificates your savings are adjusted each year – on the anniversary of your investment – in line with movements in the CPI index.
The fixed interest is then calculated on your inflation-adjusted savings (not the original amount).
In this way both capital and interest keep pace with inflation.
Index-linking is applied annually, and is reinvested into your Certificate to compound over the term.
There’s no annual payout: you receive your initial savings + index-linking + fixed interest at maturity.
Here’s a quick example of how index-linking works:
CPI index = 100 (Index figure two months before the start of your certificate’s investment year.)
CPI index = 105 (Index figure two months before the end of your certificate’s investment year.)
105 – 100 / 100 = 0.05 (5% rise in CPI inflation over the last 12-months.)
The formula for the percentage increase is:
New index figure minus old index figure / old index figure * 100.
As you can see, the interest rate is now derisory. But the index-linking makes a considerable difference when inflation is high.
How have NS&I Index-linked Saving Certificates features deteriorated in recent years?
No early access – You’re now completely locked in to your Index-linked Saving Certificate for the entire fixed period if its term began on or after 23 July 2023. If your Certificate’s term started before 23 July 2023 then you can cash in the product early – in exchange for the loss of 90 days’ interest and that investment year’s worth of index-linking.
If your old-style Certificate allows early access then do it as close as you can to your “anniversary date.” At that point your index-linking is added and a new investment year starts. Thus if you cash in a month after your investment year begins, you’ll only lose a month of uplift. Cash in one month before your anniversary date, and you’ll lose 11 months of index linkage.
Index-linked to CPI not RPI – The inflationary uplift used to be linked to the Retail Prices Index (RPI), not CPI. RPI inflation is typically higher than CPI, but this older measure is gradually being phased out in government and across a range of financial products.
Terrible interest rate – The interest rate has progressively worsened and is pretty much irrelevant today. But that doesn’t mean you should necessarily ditch your saving certificates, as we’ll see.
What are my choices when an Index-linked Saving Certificate matures?
It’s pretty straightforward:
You can let it automatically roll over into a new Certificate of the same term
Or select a different term, as long as it’s either three-years or five-years
Or take the money and run
You can also withdraw some of your money while reinvesting the rest.
Splitting your reinvestment money between different terms is also an option. The minimum reinvestment amount is £100 per Certificate.
What you cannot do, sadly, is invest any new money.
Index-linked Saving Certificates offer a 0.01% fixed interest rate, regardless of which term you choose.
That’s a pitiful return. But it’s better to think of it as a:
Tax-free, inflation-matching rate + 0.01%
To contextualise how good that can be, remember that CPI 12-month inflation was 10.5% in December 2022.
A non-taxpayer earned 10.51% on their Index-linked Saving Certificates during that period
So a basic-rate taxpayer required an asset yielding 13.13% to match that rate
A higher-rate payer would have needed a 17.52% return to keep up
You couldn’t get that from any bank account. Indeed you couldn’t get it from equities either. They posted a loss that year.
Inflation has subsided since 2022 but it hasn’t gone away. Inflation can also flare up shockingly fast – despite lying dormant for decades – as the post-Covid inflationary surge taught us.
Are NS&I Index-linked Saving Certificates a good investment?
A good investment should hit as many of these bases as possible:
Protect your wealth during bouts of inflation or deflation
When measured against these criteria, Index-linked Saving Certificates are a fantastic investment.
They do provide a real return, though at 0.01% a year they only just break even against inflation.
Indeed, other major asset classes have historically offered better returns than 0.01% over the long run.
But the crucial difference is that the Index-linked Saving Certificates’ real return is guaranteed. Cash locked up in Index-linked Saving Certs will match inflation every year.
In contrast money market funds posted a real-terms loss nearly every year from 2009 to 2023 (inclusive, with the only exception being a tiny win in 2015).
Most bank accounts failed to keep up with inflation during that period, too.
Meanwhile, equities, bonds, gold and every other asset class you care to mention are volatile. They can be struck by bear markets that last for years on end.
Whereas from the perspective of a diversified portfolio, Index-linked Certificates are completely unaffected by and uncorrelated with whatever is rocking other assets’ world – for good or ill.
Inflated expectations
Straightforwardly, the truly invaluable role that Index-linked Certificates play in your portfolio is as an inflation hedge.
Very few assets properly hedge inflation. And the best alternative – index-linked gilts – is much more complicated.
High inflation is a deadly foe and NS&I Index-linked Saving Certificates counters it on unbeatable terms. No other inflation hedge can give you a guaranteed real return with no capital downside along the way.
Of course, there’s every chance that inflation could fall away and interest payable on ordinary savings accounts offer a greater return over the next five years.
But that is not the point.
The idea with insurance is to take it out before you need it. And these Index-linked Certificates neutralise inflation – as well as deflation – like no other asset.
Nobody knows what inflation will do in the years ahead, which is why central banks frequently misjudge the risk. Yet here we have a super-safe inflation-defeating device that will preserve your spending power.
All for no fee!
Add in the completely tax-free returns and also their simplicity, and it’s easy to see why existing Certificate holders are loath to give them up.
Final verdict: should I renew my Index-linked Savings Certificates?
Renew NS&I Index-linked Saving Certificate if…
You want inflation-proof, tax-free, risk-free capital protection.
You’re risk-averse, or you want to offset equity / bond risks elsewhere in your portfolio.
You can commit for three to five years with no access needs.
You value peace of mind more than investment performance.
Consider alternatives if…
You want higher nominal returns and can take the risk you may not get them.
You might need access to your funds.
You strongly believe inflation will be low over your term (and beyond?)
You have plenty of alternative tax shelters.
In short, renewal makes sense when you prioritise stability, tax-efficient wealth preservation, and safety over yield and liquidity.
Bonus sections: certified details
Here’s a couple of additional sections: on the likelihood of new Certificates being offered again to savers, and what happens if you die while holding them.
Are NS&I Index-linked Saving Certificates coming back?
It’s possible that Index-linked Saving Certificates will return. After all, they were first introduced in 1975 to help protect retirees from the ravages of inflation.
However new issues were heavily oversubscribed in the wake of the Global Financial Crisis. Not surprising when bank rates crashed, inflation picked up, and the solvency of commercial lenders was being questioned.
In that perfect storm, real yields on UK Government debt fell into negative territory and it was ultimately cheaper for HM Treasury to raise money via the bond market than through its consumer-orientated NS&I operation.
But the picture has changed since 2022, with yields rebounding.
Two- to five-year index-linked gilts now offer real yields of 0.1% to 0.6%. That’s notably higher than NS&I Index-linked Saving Certificates’ real yield of 0.01%.
In theory then, space has opened up for the Government to issue new Index-linked Certificates. However there’s no word on whether it intends to, nor any obvious political appetite to assist savers against high inflation.
It’s plausible this ongoing lack of fresh availability implies the certificates are so attractive that new issues may still overwhelm NS&I’s fund-raising targets and outcompete the commercial market.
That alone should give you pause before you cash them in…
NS&I Index-linked Savings Certificates on death
Certificates continue to earn tax-free index-linked growth and interest after death.
However, the Certificate falls into the estate of its last remaining holder upon their death and so may be subject to Inheritance tax.
Joint certificates continue to be owned by the surviving holder in the event of their partner’s death.
If you inherit an Index-linked Savings Certificate then it can be transferred into your name.
You should be able to claim the money instead if you so wish. See the NS&I form: Instructions to cash inIndex-linked Savings Certificates on this page.
NS&I lists the information it requires after a bereavement on its website. It accepts photocopies of the original Savings Certificates.
Note: we’ve updated this article to reflect the status quo in March 2025, but kept the comments below for posterity. Please check the comment date if anything seems odd.
NS&I rounds down in its latest Summary box example. [↩]
Positive returns after inflation including interest payments. [↩]
A long-time Monevator reader asked me this week why we haven’t written something in the vein of the Covid crisis Do Not Sellspecial that inspired a thousand (okay, four) T-Shirts?
The quick answer is – as my co-blogger The Accumulator said on that day in March 2020 – we don’t like to get involved in day-to-day market commentary. Especially not for passive investors.
This isn’t just because we don’t think we have much insight into where the market will go next.
(No great humility on our part, we think almost nobody has that edge).
Rather it’s also because we believe it’s unhelpful for most people to try to make the market timing decisions that thinking you know better can inspire.
Calm tweaks to allocations decided on a Sunday morning when the markets are closed are one thing.
Dumping half your stocks on Monday because a man on YouTube is shouting: very different.
Chronic disability
But there’s a more difficult explanation as to why this isn’t a Covid crash moment to my mind.
In short some of the drivers of this US sell-off are arguably more serious than a global pandemic. At least from an investing perspective, but maybe on a long-term human history view, too.
That’s because something is happening in the US that I don’t think we can dismiss as business-as-usual.
True, it’s too soon to know what America apparently going rogue will mean for geopolitics and trade.
And for sure if after all the shouting we just have a bit more defence spending in Europe, some self-defeating but limited tariffs, and an even more winner-takes-all society in the US, that’s hardly existential.
But if this does escalate into a 1930s-style tit-for-tat global trade war then we can probably look forward to a deep recession, if not a depression.
And that’s to say nothing of the obvious threats to stability of a truly disintegrating global order, if that came about too.
The nukes haven’t gone anywhere.
No vaccination against economic illiteracy
So how should markets price in all this?
Probably much as they are is my best guess. The declines seem pretty orderly to me.
That might sound odd after one of the fastest circa 10% corrections in US stock market history – and against a cacophony of ‘hold the lines!’ from US commentators that mostly make things feel worse.
But we could expect a lot worse given the potential lasting damage to growth and cooperation that we’d see from a Trump administration that truly did what it’s saying it’s going to do.
Without wanting to re-litigate every turn of the pandemic, once it was clear that most people recovered from infection and that the oldest were the most vulnerable, it was always likely to end relatively quickly.
We had a ton of medical history to show that.
Millions might die – did die – and the upheaval could have – is having – long-term social and political consequences. But global productivity didn’t have to be indefinitely impaired.
However that’s not true of destructive nationalistic trade wars.
The global economy will surely become less efficient. And nationalism goes hand-in-hand with conflict.
I hardly need to state the worst cases from the last century to demonstrate where this could lead.
Do not sell. Probably.
Of course most people shouldn’t sell on this escalating drama.
But that’s because a strategy of regularly trying to make such decisions will probably reduce your long-term returns, due to poor trading decisions.
It’s not because hindsight won’t show us that selling this particular time and buying back in one, five, or ten years time wasn’t retrospectively the right move.
However if you have that kind of foresight, you probably already know about it. But nearly everyone doesn’t. And nobody is even close to perfect.
(Spoiler alert: the shouting bloke on YouTube doesn’t make the grade.)
Never-ending stories
Remember too that – as always – there’s a confluence of factors behind this recent sell-off.
China unveiling of its supposedly el cheapo DeepSeek AI innovation has blown the froth off the largest US tech firms. These had become such an enormous share of the market – as discussed here and elsewhere – that even small de-ratings have huge consequences on the index level.
Then there’s the US exceptionalism story that was at its height by the end of 2024.
This basically boiled down to ‘US stocks go up the most because US stocks have gone up the most’.
I’m serious!
I could write a fancy treatise about capital going to where it’s treated best or the European regulatory burden, the privilege of having the world’s reserve currency, or the role of Silicon Valley VCs and high-skilled immigration in keeping North America on the cutting-edge.
But honestly, from a market perspective I think US stocks went up a lot for a very long time and that this probably sucked in too much money in the expectation of even more.
Whereas now investors are slashing their US holdings by the most ever, according to Bank of America.
Money is piling into a fiscally-emboldened Germany as it reportedly flees the US.
Global fund managers are even – pass the smelling salts – putting more money into the UK.
Finally, if we take Trump and Elon Musk at their word (you do you) then the US has embarked on an enormous shrinking of the state, ultimately in an effort to reduce its vast deficit and national debt.
Compare that with Germany – finally taking the spending brakes off – and you could paint everything we’re seeing as yet another QE/fiscal story. Capital leaving a retrenching US to go where money is getting easier in Germany.
Crashing bore
Could the US fall to proper bear market levels? Could it be down 20-30% by next year?
Yes, I think that’s quite possible.
But then again, it’s always possible. No need to send me a prize if it happens.
It’s nothing likely a certainty, however. And in some ways improbable.
American household and company balance sheets are in good shape. Meanwhile the US Central Bank has shown little stomach for deep drawdowns, so we could expect some kind of emergency rate-cut package to take the edge off any falls.
And this is not to even get into exactly what the US administration will do, versus how much is noise.
Trump is such a chaos agent, you could even argue his reputation has made this latest drawdown more orderly than it would be under a traditional US leader with a similar trade agenda.
While the enthusiasm for US tech stocks, say, got very giddy, I doubt hedge funds and other massive pools of capital went all-in on business as usual following Trump’s election last November.
Which in turn implies such institutions wouldn’t have gone overboard with leverage and the like, either.
It was perhaps telling that Bill Ackman said in his recent Pershing Square report that the fund didn’t put on any of the asymmetric bets that have made it billions previously. For Ackman’s taste the options and other securities Pershing Square uses to put on those trades never got cheap enough.
Which might tell us markets, perhaps surprisingly, weren’t overly-complacent about risk in 2024 after all.
Reinvigorating reading
We’re now going deep into the weeds for the tastes of most readers, though. So I’ll conclude with three good articles on the recent wobble.
