A few years ago, inflation was constantly in the headlines as the Covid-19 pandemic and the war in Ukraine caused living costs to spike. Fortunately, inflation has slowed significantly since then, and costs aren’t rising as quickly as they were.
However, inflation hasn’t gone away and the recent conflict in the Middle East has led to renewed concerns about the cost of living.
As such, you must be aware of what is happening to inflation and how this might affect your finances.
Read on to learn more.
Inflation may have fallen but it remains above the Bank of England’s target of 2%
According to the Office for National Statistics (ONS), inflation was 2.8% in the 12 months to April 2026. This was welcome news as the previous release from the ONS showed that inflation in the year to March was 3.3%.
However, it’s important to consider this in a wider context.
For instance, ONS data shows that inflation in January and February was 3%, so it increased in March before falling again in April.
This increase was likely caused by rising energy costs after the onset of the Iran war. As the conflict continues, we could see inflation rise again.
More importantly, even at 2.8%, the rate remains above the Bank of England’s (BoE) target of 2%.
As inflation remains stubborn and price rises could accelerate again soon, you may notice several knock-on effects on your finances.
Your monthly outgoings could increase, putting pressure on your budget
When you see inflation figures, they might seem arbitrary. But inflation is a measure of how quickly the cost of goods and services is rising.
This means that, when inflation is high, the cost of your energy bills, the food you eat, and the fuel you put in your car all go up.
You might notice the effects of this on your monthly budget, as your money doesn’t go as far as it once did. This could mean that you spend funds reserved for your savings and investments on regular expenses instead.
If this is the case, it’s important to review your spending and consider whether you could cut back in certain areas so you can continue contributing to your savings for the future.
Sustained inflation could erode the value of your cash savings…
Even when rates are relatively low, inflation still affects the spending power of your cash savings.
For instance, the BoE inflation calculator shows that goods and services costing £10,000 in 2020 would have cost £13,044.33 in April 2026.
So, £10,000 in 2026 doesn’t buy as much as it did back in 2020.
As such, if you leave your cash savings in a low-interest account, inflation could slowly erode the real-terms value of your cash.
…But you might generate more growth from your cash in the future
Although rising prices might hamper the value of your cash, it’s also worth considering how inflation affects interest rates.
The rates that banks and building societies offer on savings accounts are largely driven by the BoE base rate, which fluctuates.
When inflation is high, the BoE typically increases the base rate because this makes borrowing more expensive and reduces the amount of disposable income people have. It also increases the interest people receive on their cash savings.
This combination means people are less inclined to spend, and price rises slow as a result.
As a result of this strategy, the BoE increased the base rate several times, eventually settling at 5.25% in August 2023.
Since then, as inflation dropped, the base rate came down again, hitting 3.75% in December 2025.
In the first half of 2026, as inflation has fluctuated and there are concerns about another significant rise, the BoE has kept the base rate static.
If inflation does increase again and interest rates follow suit, you might be able to secure higher interest rates on your cash savings. If so, it’s important to compare accounts and move your savings regularly to secure competitive rates and mitigate the effects of inflation.
Uncertainty about interest rates could affect your mortgage costs
Although you may have benefited from higher interest rates on your savings in the past few years, your mortgage costs could have increased, too.
Many people felt a large shock when remortgaging or taking out a new mortgage after interest rates had risen, and the drop in rates that followed was welcomed.
Unfortunately, the onset of the Iran war caused much uncertainty about inflation and interest rates, meaning that mortgage lenders were far more cautious about the rates they offered.
The BBC reported that in just two days, lenders pulled more than 500 mortgage products off the market as average rates rose above 5% – the highest level since June 2025.
As the uncertainty around inflation and interest rates remains, it could be more difficult to find favourable mortgage rates. And if interest rates rise again, you might face higher monthly mortgage costs in the future.
Get in touch
As you can see, inflation can affect your finances in several ways. Fortunately, we can support you so you’re still able to achieve your goals despite inflation.
Please give us a call on 01276 855717 or email info@braywealth.com today if you need guidance.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
| Your home may be repossessed if you do not keep up repayments on your mortgage. |
Approved by the Openwork Partnership on 12/06/2026
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