What rising inflation means for your money

Key takeaways

• UK inflation rose to 3.3% in March 2026, above the Bank of England's 2% target
• The main drivers are energy and transport costs, pushed up by global instability
• If your savings rate is lower than inflation, the real value of your money is falling
• Variable-rate borrowing becomes riskier when inflation and interest rates are elevated
• Fixed-rate personal loans offer a predictable monthly repayment that doesn't change
• The Bank of England expects inflation to remain between 3% and 3.5% through most of 2026
  
  

What is inflation and why does it matter?

Inflation is the rate at which prices across the economy rise over time. It's measured by the Consumer Prices Index (CPI), which tracks the cost of a representative basket of everyday goods and services - from food and fuel to clothing and household bills.

According to the Office for National Statistics (ONS), UK CPI inflation rose to 3.3% in March 2026, up from 3.0% in February 2026. That's more than one and a half times the Bank of England's 2% target.

In practical terms, inflation isn't an abstract economic statistic. It's the reason your weekly shop costs more than it did last year, your energy bills keep creeping up, and the pound in your pocket doesn't stretch quite as far.

The main drivers of the current rise are transport costs - particularly motor fuel - and energy prices, both of which have been pushed up by global instability. Those costs don't stay contained. When businesses face higher energy and transport bills, those increases tend to filter through to the prices consumers pay for everyday goods and services.

In short: when inflation rises, the cost of living rises with it.

What does rising inflation mean for your savings?

Inflation quietly erodes the purchasing power of money held in savings. Here's a simple example: if your savings account pays 3% interest but inflation is running at 3.3%, your balance goes up - but what it can actually buy goes down. Economists call this a negative real return, but in everyday terms it just means your money is losing value faster than it's earning interest.

That's not an argument against saving. Building an emergency fund and putting money aside for the future are always sensible moves. But it does highlight why it's worth regularly reviewing your savings rate to make sure it's working as hard as possible for you.

Things worth checking:

• Is your savings account paying a competitive interest rate?
• Have you shopped around recently? Rates vary significantly between providers.
• Are you making use of your ISA allowance to shelter savings from tax?
  
  

What does rising inflation mean for borrowing?

Rising inflation often leads to higher interest rates. The Bank of England uses its base rate as its primary tool to bring inflation under control - by making borrowing more expensive, it aims to reduce spending and ease price pressures.

The Bank Rate currently sits at 3.75% (as of May 2026). While a cut had been expected earlier in the year, ongoing global pressures have pushed that timeline back. The Bank has said it expects inflation to remain elevated throughout 2026.

For anyone on a variable-rate product - a credit card, overdraft, or variable-rate loan - this creates real uncertainty. Your monthly repayments could increase without warning, at precisely the point when everything else in your budget is getting more expensive too.

How can a fixed-rate loan help during inflation? 

In periods of economic uncertainty, predictability becomes one of the most valuable things you can have in your finances.

What is a fixed-rate personal loan? A fixed-rate personal loan is a borrowing product where your interest rate, monthly repayment, and loan term are all agreed upfront and stay the same for the life of the loan. Unlike variable-rate products, your repayments won't increase if interest rates rise.

This certainty makes budgeting simpler and protects you from unexpected cost increases - particularly useful when energy prices, food costs, and interest rates all feel like moving targets.

A fixed-rate personal loan could be suitable if you're:

• Planning a home improvement project
• Replacing an essential household appliance
• Looking to spread the cost of a large planned purchase
• Wanting a structured, predictable way to manage your finances

Whatever you're planning, knowing exactly what you'll pay each month - from day one to the final payment - gives you a stable foundation in an unstable economic environment.

Practical steps to protect your finances

Beyond borrowing decisions, there are everyday actions worth taking when inflation rises.

What to expect for the rest of 2026

The Bank of England's Monetary Policy Committee (MPC) expects CPI inflation to remain between 3% and 3.5% through the second and third quarters of 2026, with the possibility of further rises later in the year depending on global energy markets. The next interest rate decision is due on 18 June 2026.

That means the pressure on household budgets is unlikely to ease quickly. But forewarned is forearmed. The households that tend to weather inflationary periods best are those who review their finances regularly, fix their costs where possible, and make considered decisions about borrowing and saving before they're forced to act.

Thinking about how a fixed-rate personal loan could help you budget with confidence? See what you could borrow with Novuna.

Try our loan calculator