Coming inflation means UK pension funds should expand equity allocation

QE2 will spur above target inflation in 2011 and low real yields mean pension funds should look to shares

The low real yields available from inflation-linked gilts means the best option for UK pension funds to hedge the risk of above target inflation is to expand their equity allocations, according to the asset management arm of UK insurer Legal & General.

Tim Drayson, an economist at the firm, says that the Bank of England's reluctance to raise interest rates, coupled with their continued quantitative easing policies, will cause above target inflation in the UK over 2011 which would not be matched