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The Bank of England targets 2% CPI inflation; the long-run UK average is nearer 3%, with the 2022-23 spike above 10% as the recent reminder. Cash savings earning below inflation lose buying power even as the balance grows, the quiet argument for inflation-beating rates and, long-term, investing.
What The Inflation Calculator Works Out
- Buying power then: today's amount divided by (1 + inflation rate) raised to the number of years. GBP 1,000 at 3% for ten years buys what GBP 744 buys today. The Bank of England targets 2% CPI; the long-run UK average is nearer 3%, and the 2022-23 spike went above 10%.
- Needed to match today: the same compounding run forwards: the sum you would need in the future to buy what the amount buys now. It is the figure to compare a future salary, pension or price against.
- Halving time: ln(2) divided by ln(1 + rate), or roughly 72 divided by the rate. At 2% a pound halves in value every 35 years, at 3% every 23 years and at 10% every 7 years.
- Interest the money earns (advanced): the AER on savings holding the amount. The calculator shows the nominal balance it grows to and what that balance is worth in today's money. Most easy-access accounts pay below inflation most years, so the "safe" account is often a slow loss in real terms.
- Real return (advanced): (1 + interest) divided by (1 + inflation), minus 1. Cash needs to earn above inflation merely to tread water; fixed-rate debt runs the logic in reverse and is repaid in shrinking pounds.
- Comparison inflation rate (advanced): a second rate run side by side, for example the 2% target against your own higher assumption. Personal inflation differs from the national basket: essentials-heavy budgets run hotter in energy and food spikes.
- Pay rise offered (advanced): the real change in your pay after inflation, (1 + rise) divided by (1 + inflation) minus 1. A below-inflation rise is a pay cut that does not announce itself.
- Year-by-year table (advanced): for each year, the balance with interest, what the original amount still buys, and the price of today's amount. The ONS reports CPI (the target measure), CPIH (adding owner-occupier housing costs) and RPI, which runs higher by construction and survives in rail fares and student loan interest.
Further reading: Bank of England: what is inflation?