UK Inflation Explained: How CPI Is Measured and What It Means for Your Money

Inflation is the rate at which the general price level rises over time. In the UK the headline measure is the Consumer Prices Index, published every month by the Office for National Statistics. CPI was 2.8% in the 12 months to April 2026, just above the Bank of England's 2% target. CPIH, the broader measure that includes owner occupier housing costs, was 3.0%.

This explainer walks through how the ONS calculates the index, the difference between CPI, CPIH and RPI, what the Bank of England does in response, and what inflation actually means for savings, mortgages and pensions.

What inflation actually measures

Inflation measures the average rate of change in the price of a basket of goods and services that a typical household buys. The basket includes everything from food and energy to clothing, transport, recreation and services like restaurants and hairdressers.

The ONS weights each category by how much of household spending it accounts for. Categories with a larger share of household budgets, like housing and food, have a larger weight. The weights are updated every year based on spending data.

Inflation is reported as a percentage change. A reading of 2.8% means the basket cost 2.8% more in the latest month than it did in the same month a year earlier.

How the ONS calculates CPI

ONS collects around 180,000 individual price quotes each month across hundreds of products and services and across regions. Some prices come from in person visits to shops, others from supermarket scanner data, and others from administrative data such as rents and energy tariffs.

Each price is matched against the same product in the previous month to track price change. The ONS then aggregates the individual price changes using the basket weights to produce the headline index.

ONS publishes a detailed methodology document and an explanatory bulletin every month. The latest Consumer Price Inflation bulletin is the primary source for the headline rate and the underlying contributions by category.

CPIH vs CPI vs RPI

CPI is the headline measure published every month and used by the Bank of England for its 2% target.

CPIH is CPI plus owner occupier housing costs, mainly imputed rents on housing that owners live in. ONS treats CPIH as the broadest measure of inflation for consumer spending. CPIH was 3.0% in April 2026.

RPI is the older Retail Prices Index. It is no longer a National Statistic but is still used for some index linked gilts and some legacy contracts. RPI tends to run higher than CPI because of methodological differences, including how it handles housing and how it averages prices across products. ONS plans to align RPI with CPIH by 2030.

Why inflation affects savings, mortgages and pensions

Savings held in a cash account lose purchasing power if the after tax interest rate is below inflation. With CPI at 2.8%, a savings account paying 2% gross loses about 0.8 percentage points of real value per year on the headline measure, before tax. The Personal Savings Allowance protects some interest from tax for basic and higher rate taxpayers.

Mortgages are different. A fixed rate borrower whose wages keep pace with inflation effectively repays the loan in cheaper future pounds. A floating rate borrower bears the risk that Bank Rate rises if inflation runs above target.

Defined benefit pensions in payment are usually indexed to inflation, either CPI or RPI, subject to caps. A pension indexed to a 2.5% cap loses ground in a year when CPI runs above 2.5%. Workplace defined contribution pensions invest in mixed assets that may or may not keep pace with inflation depending on returns.

Inflation also matters for benefits. Universal Credit, the State Pension under the triple lock and other working age benefits are typically uprated each April using the previous September CPI figure.

The Bank of England, interest rates, and the 2% target

The Bank of England's Monetary Policy Committee sets Bank Rate with a remit to keep CPI inflation at 2%. When inflation is above target, higher rates cool demand and help bring inflation back to target over the medium term. When inflation is below target, lower rates support demand.

MPC meetings are scheduled eight times a year. Minutes are published alongside the rate decision and a quarterly Monetary Policy Report sets out the Committee's forecasts.

Forward looking expectations matter as much as the latest reading. If the MPC expects inflation to ease over the next 12 to 24 months, it may hold or cut rates even when the current figure is above target.

What to do when inflation moves

Review whether your savings rate is above or below inflation. Cash ISAs, fixed term bonds and easy access accounts pay very different rates. Money Helper publishes free comparison guidance.

If you are coming off a fixed rate mortgage, compare the prevailing two year and five year fix rates against your current expected payment. The Money Helper mortgage section has plain language guidance.

If you have a workplace pension, check the asset allocation and how it would fare in a high inflation environment. The Pensions Regulator publishes guidance for trustees and members.

If you are on a tight budget, gov.uk lists benefits that are uprated annually with inflation. The Cost of Living Hub on gov.uk has a single overview of cost of living support.

Frequently asked questions

What is the current UK inflation rate?

CPI was 2.8% in the 12 months to April 2026 according to the ONS. CPIH, which includes owner occupier housing costs, was 3.0%. The latest figure is published in the monthly Consumer Price Inflation bulletin.

What does the Bank of England target?

The Bank of England has a target of 2% CPI inflation. The Monetary Policy Committee sets Bank Rate to keep inflation at target over the medium term.

Is RPI still used?

RPI is no longer a National Statistic but is still used for some legacy index linked gilts and some private contracts. ONS plans to align RPI with CPIH by 2030.

Does inflation affect the State Pension?

The State Pension is uprated each April under the triple lock, which uses the highest of CPI, average earnings growth or 2.5%. The CPI figure used for uprating is normally the September reading of the previous year.

Where can I find the latest CPI figure?

The Office for National Statistics publishes the Consumer Price Inflation bulletin every month. The gov.uk statistics page links to the latest release.