Rising prices mean your savings lose their buying power faster than they grow, your pension pot might fall short of your pension needs, and your income demands regular hikes just to keep up with the cost of living.
Inflation has fallen significantly since hitting 11.1% in October 2022, which was the highest rate for 40 years. We could all breathe a sigh of relief.
This was mainly due to the Bank of England, which hiked the Bank Rate to get inflation under control. Making borrowing more expensive means people have less money to spend. They may also be encouraged to save more. Inflation should fall as a result.
It was painful, especially for anyone with a mortgage, but it helped drive inflation down. It may have been a price worth paying.
With inflation closer to the 2% target, the Bank was able to start cutting interest rates.
The good news is the Bank of England decided to cut the base rate from 4.25% to 4% on 07 August 2025, its fifth rate cut in 12 months.
Inflation, however, may still be edging up again.
What is happening?
Inflation is the increase in prices over time. If a loaf of sliced bread costs £1 but costs £1.25 a year later, then annual bread inflation is 25%.
The prices of hundreds of everyday items, from a pint of milk to a litre of petrol are tracked by the Office for National Statistics. This allows the main inflation measure, the Consumer Prices Index (CPI) to be calculated and published every month.
The consumer prices index rose to 3.6% in June, which was its highest level in more than a year. It had been expected to remain unchanged from 3.4% where it had stood for the previous two months.
The ONS also measures ‘core inflation’ which excludes food and energy prices because they are volatile, it can provide a better indication of longer-term trends.
Core CPI was 3.8% in April, up from 3.4% in March.
It looks as though inflation is heading back up. Should we be worried?
What’s causing this increase in inflation?
The rise in inflation was the largest since October 2022, at the height of the energy crisis.
There was a flurry of rises including steep increases to water charges, council tax, road tax, mobile and broadband tariffs. Millions of households also saw a jump in their annual council tax bills, with most local authorities in England increasing a typical band D bill by 5%.
But experts have also said many firms hiked prices in response to the Government’s raising of national insurance contributions and the minimum wage. Retailers seem to have been particularly badly hit.
But will inflation keep rising?
The Monetary Policy Committee said that CPI inflation is forecast to increase to 4% by September 2025 but is expected to fall back thereafter towards the 2% target.
Some economists believe that inflation may have peaked and the factors that drove it have done their worst.
But predictions are one thing, and what happens is another. We don’t know what impact US President Donald Trump’s global trade tariffs will have on prices. They could be driven up by struggling UK exporters, or down if China seeks new markets. Events in the middle east could have a huge impact on the price of oil and strangle global trade routes.
If inflation goes up, or even if it does not fall as predicted, we can’t expect the Bank of England to be generous in cutting interest rates.
What can you do?
You can’t stop inflation or do much about the Bank or England’s decisions on rates.
What you can do is prepare for its effects on your own finances.
There may be several steps you need to take.
The first may be to look at your household spending. Many of us are tightening our belts, but the problems may need more than shopping at a cheaper supermarket.
If your mortgage is already causing problems, you may not be able to rely on rate cuts to reduce it. It could be time to consider remortgaging. A more affordable mortgage deal could be a big help to your monthly budget.
You might need to look at long-term planning. If inflation continues, you may need to find ways to boost your pension pot if your retirement income is not going to be enough for the lifestyle you want.
Fortunately, at Continuum we can provide the help you need, with mortgages and remortgages, pensions forecasting and planning and preparing for a future where you need more money.
Inflation is not going away. Get the help you need to deal with it by calling us today.
Bank of England cuts interest rate to two-year low
Consumer price inflation, UK – Office for National Statistics
UK inflation: What is the rate and why are prices still rising? – BBC News
Council tax levels publication – MHCLG in the Media
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available.
Past performance is not a guide to future performance.
