UK finance jargon - in plain English
The rate at which prices rise over time.
Inflation is the general increase in prices across the economy, which means your money buys less over time. In the UK it's primarily measured by the Consumer Prices Index (CPI), which tracks the cost of a typical basket of goods and services. The Bank of England has a target to keep inflation at around 2% per year. When inflation is higher than that, the Bank may raise interest rates to try to bring it back down.
If inflation is 5%, something that cost £100 this year costs £105 next year. If your salary only rises by 2%, you've had a real-terms pay cut even though your nominal pay went up. The same applies to savings. If your account earns 2% interest but inflation is 4%, the purchasing power of your money is falling every year, even as the balance grows.
Numbers simplified for illustration. Inflation rates, interest rates, and salary growth all vary over time.
People think inflation only matters for big purchases or mortgages. In reality it quietly erodes the value of cash savings sitting in low-interest accounts. If your savings rate is consistently below inflation, you're losing purchasing power year on year, even as the number in your account goes up.