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Published: 23 April, 2024

Just last week the Bank of England released the latest inflation data for the UK. Inflation is most commonly measured by the Consumer Prices Index (CPI)  and the most recent data showed that prices rose by 3.2% from the end of March 2023 to March 2024.

In this blog post, we will look at what inflation means for you, how it is linked to interest rates and what you can do to combat inflation.

What is inflation?

In its simplest terms, inflation measures how much more expensive goods and services have become over a period of time, usually a year.

For example, if a bunch of 6 bananas cost £1 in April 2023 and now in April 2024, they cost £1.50, the price has increased by 50p which represents inflation of 50%.

If you had a £1 coin in your pocket in April 2023 you could buy the 6 bananas however if you have the same £1 coin in your pocket in April 2024, you wouldn’t be able to afford the 6 bananas.

So, as you can see, over time, inflation erodes the buying power, or value of your money.

Is inflation good or bad?

The higher prices go, the more challenging it is for people to be able to afford everyday essentials. The reality is that rising costs don’t necessarily match increases to wages, which means many households face challenging times when inflation is on the rise.

That being said, inflation isn’t always a bad thing.

Some level of inflation is crucial for a healthy economy and the UK government targets 2% inflation each year, with the aim of keeping the economy growing at a healthy pace. Without growth, we can see a stagnant economy and this can ultimately lead to high unemployment and low earnings.

Why do people talk about interest rates and inflation at the same time?

As mentioned above, the government likes to see a steady rate of inflation however problems can arise when inflation starts to climb too high. In October 2022 inflation reached as high as 11.1% which is more than 5 times the government’s targeted rate of 2% each year.  

When inflation starts to climb, the government needs to take measures to combat this and one of the key ways that they can do this is by making changes to interest rates.

Altering interest rates has a direct impact on how much disposable income households have and generally speaking, the more disposable income they have, the more money they have available to spend in the economy. The more that individuals spend, the higher inflation can climb. This is why when inflation starts to climb, we tend to see increases to inflation rates as the effect of this is that borrowing becomes more expensive and this reduces how much disposable income individuals have to spend in the economy. This eventually slows down economic growth, thus reducing inflation. Increased rates also mean higher interest rates for savers meaning more people are inclined to save rather than spend and this also has a direct impact on how much money is being spent in our economy.

The Monetary Policy Committee (MPC) sits within the Bank of England and are the body who decides whether to increase, decrease or keep inflation the same.

Each member of the MPC make their decision based on the comprehensive data and analysis they receive on various aspects of the economy such as inflation, employment data, output and market conditions.

How do interest rates affect me?


One of the biggest expenses for many households is their mortgage. When interest rates rise or fall, mortgage rates tend to follow. Those on tracker and standard variable rate (SVR) usually see an immediate change in their monthly payments. It is thought that there are more than 1.4 million people on tracker and SVR rates.

Meanwhile about three-quarters of mortgage customers have fixed-rate deals. These monthly payments aren't immediately affected when the Bank rate changes however future deals are. It is thought that around 1.6 million deals will expire in 2024.

With recent rate changes, many people’s mortgages repayments have increased by 50% which really has eaten into people’s disposable income.

Credit cards and loans

In a similar vein, an increase in interest rates can cause an increase in the amount charged on credit cards and loans.


The Bank of England interest rate also affects how much savers can earn on their money.

Some years ago, savers were not fussed about shopping around for the best rate as the rates on offer were so low. However now with higher rates of interest, it is vital to ensure you are making your money work for you and getting a good rate of interest on your money.

In addition to this, with the Personal Savings Allowance (The allowance you have before paying tax on interest you receive) at just £1,000 for a basic rate taxpayer, £500 for a higher rate and £0 for an additional rate taxpayer, it is even more important to be using your ISA allowance of £20,000.

Any interest or withdrawals from ISAs are free from tax.

When will interest rates fall?

Inflation has fallen a lot already which the MPC regard as good news however they still want to see more evidence that inflation will fall further and stay low before lowering interest rates.

Financial markets are currently predicting the first cut in interest rates will be in June 2024, falling to around 3% by the end of 2025.

Despite this, there are other global events such as the conflicts in the middle east which could easily cause a spike in energy costs and this could cause inflation to rise.

How can I protect my money against inflation?

One of the most important takeaways from this blog post should be how you can protect your money from Inflation. By not taking any action, you could be losing money without even realising it.

As the blog post has shown, inflation doesn’t just affect the money you spend, it can shrink the value of your savings too.

However, there are steps you can take to protect your purchasing power such as:

  1. Reviewing your existing borrowings. It could be worthwhile waiting to pay off low-interest debt, consolidating existing borrowing or paying off one loan quicker than another.


  1. Track your spending. When costs are on the rise, every bit that you're able to save counts. Tracking your spending is a great way to make sure that you're using your money as effectively as possible.


  1. Find the best interest rate you can on your savings. The rate you receive on easy access savings tends to be the lowest out of the banks offerings. Having too much in low interest accounts can lead to its value being eroded by inflation.


  1. Think about long-term investments. Investing isn’t for everyone however it is not always as daunting as it may seem. Many people are invested through their pension schemes and don’t even realise it. Investing in the stock market can provide a hedge against inflation. For example, The FTSE100 (The UK’s 100 biggest companies listed on the London Stock Exchange) has, since it’s creation in 1984, produced an average return of 5.2% per year with inflation over the same time period being an average of 3.7% per year.

These are all areas that an independent financial adviser can help you with. If you would like more information or help with any of the above, please contact us on 01935 848764.


Warning - Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your motgage. The information contained in this article is for information purposes only and does not constiute advice. Decisions should not be based soley on any information contained within the website, individual advice should be sought.
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