Guide to inflation
Inflation could impact your savings, but we have options to help you.
What is inflation?
Essentially, inflation is an increase in the price of goods (clothes, food, etc.) and services (hairdressing, plumbing, etc.) over a period of time.
It's calculated by taking the cost of something today - such as a pint of milk - and looking at how much it cost this time last year. This cost comparison is done on a wide variety of items known as the 'basket of goods and services' which the Office for National Statistics then averages.
Inflation is expressed as a percentage based on the increase in prices of the items in the basket. So, if your pint of milk cost £1 last year, and £1.03 this year, inflation has risen by 3%.
Is there a drawback to a higher inflation rate?
The UK's inflation target is 2% year on year. Controlled inflation can be positive for the economy. But if it jumps quickly or unpredictably, it can make it difficult for people to know how much to spend, save, or invest.
How might inflation impact me?
Day to day, inflation changes how much your money is worth. If there is a higher inflation rate, your money won't go as far, simply because things cost more.
Look at the image to see an example of how the buying power of £10,000 would drop by £900.82 between 2021 and 2022, with inflation currently at 9.9%.** The rate of inflation can fall as well as rise.
*Figure has been rounded up to the nearest whole number. **Source: Office for National Statistics - Consumer price inflation, September 2022.
How will the rate of inflation affect my cash held?
Let us know how much cash you hold and what the inflation rate is and we'll work out the future buying power of your cash. Our inflation calculator is based on the inflation rate remaining the same for the year.
Please use the calculator as an estimate. It does not include interest you would earn over time. The rate of inflation can fall as well as rise.
*Source: Office for National Statistics - Consumer price inflation. For an up-to-date view, visit the Office for National Statistics and review column 'CPI - 12 month rate'.
This illustration shows an overpayment of £10,000 based on a £100,000 repayment mortgage, which has 10 years remaining. This is at an assumed interest rate of 3% over the whole remaining term.
Always check that your mortgage lender allows overpayments and no early repayment charge or other fees are payable. You may need to talk to your lender if you want the effect of your overpayments to reduce the term of your mortgage.