A conventional gilt pays a fixed coupon in pounds because the amount is written into its terms at issue, and the real return on that fixed cash depends on the inflation that follows.
The cash is fixed at issue
A conventional gilt's coupon is a fixed percentage of nominal, set when the gilt is issued and unchanged for its life. A 4% coupon pays £4.00 a year on every £100 of nominal, and the £100 nominal itself is repaid at maturity. Neither figure moves, whatever happens to prices or interest rates in between. That is what fixed cash means: the pounds are known in advance, so a holder can write down every future payment on the day the gilt is bought.
The fixed cash is a deliberate design, not an accident. It gives the borrower certainty about what it must pay and the lender certainty about what it will receive, in cash terms. An index-linked gilt is the exception that proves the point: it fixes the real value of the cash rather than its pounds, and its coupon and repayment rise with the index ratio. For a conventional gilt, the fixing is in pounds.
Why borrow in fixed cash
From the government's side, fixed-cash borrowing makes the cost of its debt predictable. It knows, when it issues a conventional gilt, exactly how many pounds it will pay in each year until maturity. That certainty is useful for planning a budget that runs for decades. From the lender's side, the same certainty is the appeal: a known stream of pounds that does not depend on any index or forecast.
The trade-off is that the certainty is in pounds, not in purchasing power. The government knows what it will pay; the holder knows what they will receive; but neither knows what those pounds will buy. That is the gap between a fixed cash return and a real return, and it is the heart of what a fixed-cash coupon means.
There is a further consequence for the holder: because the future cash is fixed, its market price has to move when the return the market wants changes. That is why a fixed-cash coupon produces a gilt whose price can rise and fall, even though its payments never do. The certainty of the cash and the movement of the price are two sides of the same design.
What fixed cash means for purchasing power
If prices rise, a fixed number of pounds buys less. A £4.00 coupon that covers a certain basket of goods in one year may cover less of it in ten years, even though the pounds paid are identical. The cash is fixed; its purchasing power is not. For a conventional gilt this is an erosion that works quietly in the background, because nothing about the gilt's terms changes as it happens.
The contrast with an index-linked gilt is the clearest way to see it. An index-linked gilt scales its cash by the index ratio so the purchasing power holds, while a conventional gilt pays the same pounds regardless. Neither is better in the abstract — one fixes cash, the other fixes real value — but a reader comparing the two should be clear about which of the two certainties they are looking at.
That quiet erosion is why the real return, not the cash return, is the figure that compares a conventional gilt with an index-linked one. A conventional gilt with a 4% coupon and an index-linked gilt with a 1% real coupon can look very different in cash, but the comparison that matters is what each leaves after inflation. The cash figures are not directly comparable; the real figures are.
The real return after Inflation
To state what a fixed cash return is worth after prices move, the site uses an inflation assumption, labelled Inflation: the annual rate assumed for cash flows beyond the latest published index figure. Applied to a conventional gilt's coupon, it turns the fixed pounds into a real return — roughly the coupon less the assumed rate of inflation. The figure the Retail Prices Index reports is published monthly by the Office for National Statistics, and it is the source the assumption starts from.
An assumption is not a forecast. The Inflation figure describes what the arithmetic gives if prices rise at that rate; it does not claim that they will. That is why a real return built on it is an estimate rather than a contractual amount, and why the site marks projections that rely on it. The fixed cash is certain; the real value of that cash depends on inflation nobody can know in advance.
| Item, illustrative | Cash terms | After 3% Inflation |
| Coupon on £100 nominal | £4.00 a year | About £3.88 of present value |
| £100 nominal repaid in a year | £100.00 | About £97.09 of present value |
| Real return on the coupon | — | About 0.97% a year |
Where the real figures come from
The index-linked gilts in issue are where a real return is stated directly, because those gilts are priced in real terms. The RPI curve page shows the inflation the market is pricing over different horizons, which is the input behind an Inflation assumption. Reading a fixed-cash coupon against that curve is how a reader moves from the certain pounds to an estimate of what they are worth in real terms.
The table above is illustrative and uses a 3% inflation rate only to show the arithmetic; it is not a forecast and not a figure from any gilt. The point it makes is general: fixed cash is certain in pounds and uncertain in purchasing power, and shrinking the assumed inflation makes the real return larger while raising it makes the real return smaller.
Background, not advice
This article explains why a conventional gilt pays fixed cash and how that cash relates to a real return; it is general background, not investment, tax or legal advice for any reader's circumstances. The Inflation figure is an assumption, the RPI is published by the Office for National Statistics, and real returns are estimates rather than promises. The gilt's own terms and the published index are the primary sources.