- What is Inflation?
- What Causes Inflation in the UK?
- How is Inflation Measured in the UK?
- How Does Our Inflation Calculator Work?
- How Much is Inflation in the UK?
- What is Your Personal Inflation Rate?
- What is the UK Consumer Prices Index (CPI)?
- 6 Tips for Coping with Inflation
- How Can You Beat Inflation Through Investing?
Inflation affects everyone, from rising grocery bills to higher rent and energy costs. Over time, the purchasing power of your money decreases, meaning you need more pounds to buy the same goods and services.
But what exactly is inflation? How does it impact your daily life? And, most importantly, how can you prepare for it and reduce its effects on your finances?
Find all the answers in our detailed guide below.
To help you understand inflation’s impact, we've also built a free, online UK Inflation Calculator. It allows you to calculate the value of money from any year from 1960 to today in just seconds.
What is Inflation?
Inflation is the gradual increase in the prices of goods and services over time, reducing the value of money. This means that as inflation rises, the same amount of money buys fewer goods.
For example, if a loaf of bread cost £1.20 last year but now costs £1.50, that’s a 25% increase due to inflation. Inflation affects everything from food and petrol to housing and wages, playing a key role in the economy.
What Causes Inflation in the UK?
Inflation in the UK happens for several reasons:
- Demand-Pull Inflation – When demand for goods and services exceeds supply, businesses raise prices. For example, if more people want to buy new cars but manufacturers can’t keep up, car prices increase.
- Cost-Push Inflation – When production costs rise, such as higher wages or raw material costs, businesses pass these costs onto consumers by increasing prices.
- Supply Chain Disruptions – Events such as Brexit, global conflicts, or extreme weather can cause shortages, making products more expensive.
- Government & Monetary Policies – The Bank of England's interest rate decisions, government spending, and taxation policies all influence inflation.
- Energy & Fuel Prices – Rising oil and gas prices increase transport and production costs, affecting everything from food prices to household energy bills.
How is Inflation Measured in the UK?
Inflation is measured by tracking the percentage increase in prices over time. The UK government primarily uses the Consumer Prices Index (CPI) to measure inflation.
The CPI tracks the average price changes of a fixed basket of goods and services, including food, fuel, housing costs, and clothing.
Formula for Inflation Rate:
Inflation Rate = ((CPI in Current Year − CPI in Previous Year) ÷ CPI in Previous Year)) × 100
How to calculate UK inflation rate
For example, if the CPI was 110 last year and 120 this year:
Inflation rate = ((120−110) ÷ 110) × 100 = 9.1%
This means the inflation rate is 9.1% for the year.
To save you time, we've built an easy and instant UK inflation calculator at the top of this page, which helps you track inflation and see how it affects the value of the British pound (£).
How Does Our Inflation Calculator Work?
Our UK Inflation Calculator helps you see how inflation affects the value of money over time.
How to Use It:
- Enter the amount of money you want to compare.
- Select the starting and ending years (e.g., 2000 to 2023).
- The calculator will show how much that amount is worth today, adjusted for inflation.
For example, if £1,000 in 2000 is equivalent to £1,650 in 2023, inflation has reduced the purchasing power of money over time.
How Much is Inflation in the UK?
UK Inflation over the years
- Highest inflation: 1975 (24.2%) due to the oil crisis and economic instability.
- Recent peak: 2022 (9.1%), the highest since the 1980s.
- Lowest inflation: 2015 (0.0%), due to post-recession economic stability.
- 2024 forecast: Around 3.0%, reflecting a decline from 2022 highs.
The Office for National Statistics (ONS) tracks annual CPI inflation rates in the UK. Below is a table showing the UK’s inflation rate over the last decade:
| Year | Inflation Rate (%) |
|---|---|
| 2023 | 4.2% |
| 2022 | 9.1% |
| 2021 | 5.4% |
| 2020 | 0.9% |
| 2019 | 1.8% |
| 2018 | 2.5% |
| 2017 | 2.7% |
| 2016 | 0.7% |
| 2015 | 0.0% |
| 2014 | 1.5% |
What is Your Personal Inflation Rate?
The national inflation rate gives a broad picture, but your personal inflation rate depends on what you spend money on.
For example, if your monthly grocery bill was £300 last year but is now £360, your personal grocery inflation rate is:
((360−300) ÷ 300) × 100 = 20%
This means your grocery costs have risen 20%, even if the national inflation rate is lower.
Tracking your personal expenses can help you understand how inflation affects your specific lifestyle.
What is the UK Consumer Prices Index (CPI)?
The Consumer Prices Index (CPI) is the UK’s official measure of inflation, tracked by the Office for National Statistics (ONS). It measures the price changes of a "basket" of commonly bought goods and services, including:
- Housing (rent, mortgage payments)
- Food & groceries
- Petrol & transport costs
- Healthcare & insurance
- Clothing & entertainment
How CPI Relates to Inflation
- When CPI rises, prices are increasing, meaning inflation is happening.
- When CPI falls, prices are decreasing, which indicates deflation.
The CPI is updated monthly by the ONS and is used to adjust wages, pensions, benefits, and tax thresholds.
6 Tips for Coping with Inflation
Inflation can be challenging, but these tips can help you manage rising costs:
- Cut Unnecessary Expenses – Review subscriptions, dining out, and impulse purchases.
- Buy in Bulk & Use Discounts – Stock up on non-perishables and use supermarket loyalty schemes.
- Negotiate Bills – Call your broadband, energy, and insurance providers for better deals.
- Use Cashback & Rewards – Credit cards and apps like TopCashback can help offset rising costs.
- Consider Own-Brand Products – Supermarket brands can be 20-30% cheaper than big-name brands.
- Increase Your Income – Look for side hustles, freelancing, or salary negotiations to keep up with inflation.
How Can You Beat Inflation Through Investing?
Investing is one of the best ways to protect your wealth from inflation over time. Here’s how:
- Stocks & Shares – The FTSE 100 has historically outperformed inflation over the long term.
- Property Investment – House prices and rental income tend to rise with inflation.
- Index-Linked Gilts – UK government bonds that adjust with inflation protect your money’s value.
- Gold & Commodities – Gold and commodities like oil and agriculture often increase in value when inflation is high.
- High-Interest Savings Accounts – With rising interest rates, savings accounts and fixed-rate ISAs offer better returns.
By diversifying your investments, you can stay ahead of inflation and maintain financial security.
Inflation affects everyone, but by understanding its causes and how it impacts your finances, you can take smart steps to protect your money. Use our UK Inflation Calculator to see how inflation affects your savings and spending, and follow our tips to stay financially secure in a changing economy.
