Metis AM
2026 started with an optimistic outlook for inflation, with the UK rate falling and expected to be on target by spring.
But, following the outbreak of war in the Middle East, inflation forecasts now look very different.
Amid the media reports of changing projections, it can be difficult to understand what rising inflation means for your finances and what you can do about it.
Read on to explore the latest inflation forecasts and three ways you could help shield your finances as costs rise.
Inflation is expected to rise in the second half of 2026
The Consumer Prices Index (CPI) measures how UK prices change over time.
Before the Iran War, CPI had been steadily decreasing. Data from the Office for National Statistics (ONS) shows that the CPI fell from 3.8% in September 2025 to 3% in February 2026. At the start of the year, the Bank of England expected to hit its 2% target by spring.
However, with the crisis in the Middle East putting pressure on energy prices, inflation rose to 3.3% in March. Despite dipping to 2.8% in April, the Bank of England now expects CPI to approach 4% by the end of the year – as BBC News reports.
It’s worth noting that, while 4% is double the BoE’s target, forecasts are still significantly lower than the highs of recent years. According to UK Parliament, inflation reached a 41-year high of 11.1% during Liz Truss’s short premiership in 2022.
Inflation remaining above 2% could erode your wealth more quickly
Inflation can impact your finances in a variety of ways.
- Spending: Your costs may rise more quickly, stretching your budget. You may find you have less money left over to save and invest for the future, especially if your earnings don’t keep pace with inflation.
- Earnings: If your income does increase to account for rising costs, you may find HMRC claims a larger chunk of your earnings due to Income Tax thresholds and the Personal Allowance remaining frozen until 2031.
- Savings: If you hold a portion of your wealth in savings, inflation may erode your money’s spending power if it outpaces your account’s interest rate. The BoE may increase interest rates over the next few months in a bid to control inflation, potentially meaning higher savings rates become available.
- Debt: Rising interest rates can be positive for savings but also drive up the cost of debt. For example, your mortgage repayments could increase if you’re on a variable rate or are due to remortgage.
- Investments: Inflation can have a varying impact on investment performance depending on your portfolio. As an example, property prices may rise more quickly, while the value of bonds may fall.
The specific impacts of inflation will depend on your financial circumstances, from your spending habits to how you grow your wealth.
3 ways to combat inflation erosion
You may be able to mitigate the impacts of inflation by carefully planning how you spend, earn, and grow your wealth.
1. Grow your wealth at an above-inflation rate
One way to shield your wealth from inflation is to try to improve the likelihood of your growth outpacing inflation.
In 2025, Fidelity reports that UK savers lost £17.6 billion of their cash’s real-terms value due to inflation. While inflation ended the year at 3.4%, the average easy access savings rate was less than 2%.
However, fixed-rate savings accounts paid 3.56% interest on average. So, if you don’t expect to need short-term access to all of your savings, it could be worth moving a portion into a fixed-rate account.
Alternatively, you might consider investing funds for the long term. Fidelity highlights that the MSCI World Index delivered 13% growth in 2025 – well above the CPI. If just a quarter of the UK’s cash savings had been invested, it could have grown by around £44 billion.
That said, past performance is not a guarantee of future returns, and investing may not be suitable for everyone. As such, it’s important to speak with a financial planner before investing.
2. Review your budget to keep costs under control
While costs may rise more quickly than the BoE had previously forecast, individual price increases are likely to be gradual. This can make it difficult to spot when your expenses are rising above your budget.
It’s often worth making a comprehensive household budget to help you plan your spending and ensure you have enough left over to build towards your future goals.
Once you have a budget in place, review it regularly to see which costs are rising and identify opportunities to reduce your expenditure.
3. Maximise opportunities for tax-efficiency
Improving your tax-efficiency as you earn and grow your wealth can help mitigate the impacts of inflation.
For example, you might consider:
- Reducing your adjusted net income: As your annual earnings rise, you may become subject to a higher rate of Income Tax. Contributing to your pension, for example, is a tax-efficient way to reduce your adjusted net income to avoid moving into a higher tax bracket.
- Investing through your pension: Pension contributions are a tax-efficient way to grow your wealth. You can generally boost your contributions with tax relief at your marginal rate (subject to annual caps), while investment returns are exempt from taxation.
- Using an ISA to save and invest: ISAs are a tax-efficient wrapper for savings and investments. In 2026/27, you can pay in up to £20,000 a year across all adult ISAs without being taxed on your funds’ growth. Note: the Cash ISA allowance will effectively reduce to £12,000 a year for under-65s from April 2027.
The most appropriate strategies for you will depend on your personal needs, circumstances, and financial goals. A financial planner can create a plan that works for you to help limit inflation’s erosion of your wealth.
Get in touch
As inflation rises, our financial planners can support you to create a holistic financial plan to earn, spend, and grow your wealth efficiently. So, you could mitigate the effects of rising costs and continue building towards your financial goals.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
The content of this article was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the content.