Current UK Inflation Rate 3.4%

• Current Inflation Rate CPI 3.4% CPI – D7G7 at ONS (Dec 25, updated 22 Jan 2026
• Source: Raw data General inflation tables | CPI annual % change D7G7 at ONS

Other measures of inflation

• (CPIH) CPI including owner occupiers’ housing costs – 3.5% (CPIH – L550)
• Core CPIH (CPIH excluding energy, food, alcohol and tobacco) rose by 3.6%
• RPI – 4.2%
• General inflation tables
• See: Measures of inflation

Inflation Forecasts 2026?

Inflation is forecast to fall to around 2.5% by the Bank of England. This is due to:

• Weak economic growth
• Falling cost-push inflation factors
• Big energy price rises are moving out of 12 month index
• Return of low inflationary pressures that we saw in the 2010s – weak growth.
• Global inflation is generally low because of weak demand and low oil prices

Price Level and Inflation

Another way of understanding inflation, is to look at price level. WHen inflation is 10%, the price level rises 10% over 12 months. When inflation falls to 2%, the price level is rising at just 2%.

So even when inflation comes down, households are facing permanently higher prices.

Reasons for low inflation in the UK 2009 until 2021

• Low worldwide inflationary expectations. Europe is experiencing very low rates of inflation.
• Fall in global inflation rates since 2007.
• Reduced consumer spending due to Covid downturn
• Weaker commodity price growth.

Reasons for Surge in inflation during 2022/23

• Rising oil/gas prices
• Ukraine war disrupting gas/energy and food supplies.
• Lingering supply side issues from Covid lockdowns and impact on price of shipping.
• Excess demand at the end of Covid as households spend savings when economy opens up.

Inflation Calculator – How Inflation Erodes the Value of Money

UK Inflation Calculator

Convert an amount from one year to another (1800–2025)

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Based on annual UK inflation (CPI-style) 1800–2025. Results are approximate.

With this calculator, you can see how £830 in 1950, would be worth £40,096.51 in 2025. In other words, inflation reduces the value of money.

Inflation trends in the UK

1970s Inflation

The 1970s frequently saw double-digit inflation. This was due

• Cost-push factors - rapid rise in oil prices
• Rising wages due to powerful trade unions trying to keep up with living costs.
• Lack of independent monetary policy
• Inflation expectations rose

Late 1980s inflation

The inflation of the late 1980s was due to

• Rapid economic growth 'The Lawson Boom' - growth was above the trend rate causing supply shortages
• Rise in house prices fuelling wealth effect
• Lack of independent monetary policy. The policy was partly set by 'shadowing the D-Mark' which led to loose monetary policy in late 1980s

Inflation and wages

• Real wages = nominal wages - inflation.
• Usually, during a period of economic growth - wage growth is higher than inflation, this leads to positive real wage growth.
• During the economic recession of 2009-13 - we had a prolonged period of negative real wage growth. Wages rising at a slower rate than inflation.
• The end of 2014 saw the first signs of renewed wage growth and positive real wage growth.

Between 2008 and 2023, there has been an unusual period where we have often had negative real wage inflation. (inflation higher than wage growth)

See more at UK wage growth

Inflation and Interest Rates

The Bank of England are responsible for monetary policy. They target an inflation rate of CPI = 2% +/-1. They also take into account economic growth.

Usually, with an inflation rate above 2%, you would expect the Bank of England to increase base rates to reduce inflationary pressures. However, since early 2009, the Bank of England kept base rates close to 0.5%. This is because the Bank of England are worried about the depth of the recession. They argued that the increase in inflation (e.g. during 2011) was due to temporary cost-push factors, such as taxes, commodity prices and effects of devaluation. Therefore, they tolerated CPI inflation above target rather than risk a deeper recession.

CPI and RPI

RPI is still published by the ONS, but it is no longer designated as a national statistic.

RPI includes more items, such as housing and mortgage interest rate costs. It is calculated in a different way to CPIH. See: Definitions of CPI, RPI, RPIX

The ONS also publishes a new measure RPIJ - which involves a new method of calculating RPI

Producer inflation

The producer price index measures the price of manufactured goods as they leave the factory gate.

There is also an input price index which measures cost of raw materials. These are both a guide to future inflationary pressures.

See more at: Input and producer prices

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