There’s some good news on inflation.
Assuming no major shocks, UK inflation is likely to drift back towards the Bank of England’s 2% target from around April. After the last few years, that will be a welcome change.
But it’s worth pausing on what that actually means in real life.
Lower inflation doesn’t mean prices fall.
It simply means they rise more slowly.
Since 2022, the overall cost of living has increased by just over 10%. Everyday essentials - particularly food - have risen even more sharply. If inflation had stayed at the Bank’s 2% target throughout, prices today would be materially lower than they are.
That gap explains why many households still feel under pressure, even as the inflation numbers improve. The price level has reset higher - and that reset is unlikely to unwind.
Why this matters for long-term investors
For markets and policymakers, falling inflation is a positive. It gives central banks more room to reduce interest rates and helps bring some stability back into the system.
For households, though, the lived experience is different. The weekly shop, holidays and services are still meaningfully more expensive than they were a few years ago - and likely to stay that way.
This is why we place far more emphasis on long-term purchasing power than on short-term inflation headlines.
What we’re doing about it
Our approach is built around a simple principle: your money needs to grow faster than the cost of living over time.
That means:
- Staying invested, rather than trying to time inflation or interest rate moves
- Diversifying properly, so portfolios aren’t reliant on one outcome or economic narrative
- Focusing on real returns, not just nominal numbers
- Avoiding knee-jerk changes based on short-term data or media noise
Periods like the last few years are uncomfortable, but they reinforce why long-term planning, discipline and structure matter far more than reacting to each new data point.
Inflation may be settling down. But protecting your future spending power remains as important as ever.