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Discount rate to change from -0.75% to -0.25%, effective from 5th August 2019

The Lord Chancellor has this morning announced that the Discount Rate will be changed to minus 0.25% with effect from 5 August 2019. The announcement marks the conclusion of the review instigated following the 2017 decision to set the rate at minus 0.75%. The new -0.25% rate comes as something of a surprise and will disappoint many Defendant insurers. The working assumption in the market, based on comments made when the review was launched, was that the new rate would probably be between 0% and 1%. Numerous high value cases have been settled on the basis of an assumed discount rate within that (positive) range over the last 18 months. The Lord Chancellor’s statement says that the Discount Rate will be reviewed once every five years in future. He rejected a proposal to adopt a dual rate and/or a switchover period. With the rate still in negative territory it appears unlikely that Claimants will be able to revive accommodation claims on the basis of a Roberts v Johnstone calculation. The change will also give rise to instances of Claimants failing to beat Defendant Part 36 offers made on the basis of the current rate and it will be interesting to see what approach the Courts take to Part 36 consequences in these circumstances.

A link to the Lord Chancellor’s announcement can be found here.

The statutory instrument giving effect to the change is expected to be published this afternoon.

Written by Matthew Boyle.

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