Cash terms vs real terms: how to adjust a figure for inflation
A cash-terms figure is the number of pounds at the time; a real-terms figure adjusts those pounds for inflation so different years can be compared fairly. You convert by multiplying by the ratio of a price index in the target year to the index in the original year. HM Treasury's GDP deflator is the standard index for public spending, and the ONS CPI index is used for household prices.
The difference in one sentence
Cash terms (also called nominal) count the pounds actually spent or received in each year. Real terms restate those pounds in the prices of one chosen year, so that a rise caused only by inflation does not look like a rise in what the money buys.
A budget that rises from £100 million to £105 million in cash has grown by 5%. If prices rose 3.4% over the same period, it has grown by much less in real terms. Claims about spending, wages, benefits and prices often hinge on which of these two is being used.
The formula
To express an amount from year A in the prices of year B:
real value = cash value × (index in year B ÷ index in year A)
Any index number works as long as both values come from the same series and the same release. The year the index equals 100 (the base year ) does not affect the answer.
Which index to use
Public spending, tax and the economy: the GDP deflator. HM Treasury publishes it as GDP deflators at market prices, and money GDP , and describes it as "a measure of general inflation in the domestic economy". Budgets and Spending Reviews use it for real-terms statements.
Household prices, wages and benefits: the Consumer Prices Index. The ONS publishes the CPI index as series D7BT (2015 = 100); CPIH is L522.
Using a different index gives a different real-terms answer, so check which one a claim used before comparing your result with it.
Sources: GDP deflators at market prices, and money GDP, D7BT
Worked example 1: public spending with the GDP deflator
On 13 October 2026 we opened GDP deflators at market prices, and money GDP September 2026 (Quarterly National Accounts) , published by HM Treasury on 1 October 2026 and labelled accredited official statistics. The release is a single Excel sheet. The financial-year columns are indexed so that 2025-26 = 100.
Reading down the financial-year column:
2015-16: 72.2622
2023-24: 93.1026
2024-25: 96.757
2025-26: 100
Question: what is £10 billion spent in 2015-16 worth in 2025-26 prices?
£10 billion × (100 ÷ 72.2622) = £13.8 billion in 2025-26 prices.
Question: a budget rose from £100 million in 2024-25 to £105 million in 2025-26. What was the real-terms change?
Restate 2024-25 in 2025-26 prices: £100m × (100 ÷ 96.757) = £103.35m.
Compare: £105m ÷ £103.35m = 1.016, a real-terms rise of about 1.6% , against a cash rise of 5%.
Two details on the sheet matter. First, the outturn years come from ONS series L8GG (financial years) and MNF2 (calendar years), consistent with the ONS Quarterly National Accounts of 30 September 2026. Second, years from 2026-27 onwards are OBR forecasts "as of the Spring Statement 3 March 2026" and are shown only as percentage changes. The page says the next update will follow the Budget in late October 2026, so real-terms figures for future years can change when the forecast changes.
Source: GDP deflators at market prices, and money GDP September 2026 (Quarterly National Accounts)
Worked example 2: prices with the CPI index
From the ONS series D7BT CSV downloaded on 13 October 2026:
August 2016: 100.9
August 2026: 143.6
Question: what would £100 of spending in August 2016 cost at August 2026 prices?
£100 × (143.6 ÷ 100.9) = £142.32 . Put another way, the CPI price level was about 42% higher in August 2026 than ten years earlier. The Bank of England inflation calculator does the same kind of sum for whole years.
Source: Bank of England inflation calculator
Real-terms growth over several years
To describe how much a budget has changed in real terms over a longer period, restate every year in the prices of one year, then compare. Using the September 2026 deflator sheet:
Choose the price year, for example 2025-26 (index 100).
For each earlier year, multiply the cash figure by 100 ÷ that year's index.
Compare the restated figures. The percentage difference between the first and last is the real-terms change.
If you only have growth rates, convert them to growth factors and multiply. The deflator rose 3.93% in 2024-25 and 3.35% in 2025-26, so prices over the two years rose by 1.0393 × 1.0335 = 1.0741, or 7.4%, matching the index values of 93.1026 and 100. Adding the two rates (7.3%) slightly understates the change.
Wages, benefits and household incomes
For pay and household income, the ONS itself publishes real-terms series, so there is often no need to calculate. Its labour market releases give average weekly earnings adjusted for consumer prices, and our real pay key figure page explains the series. When a claim says wages are "up in real terms", check:
which earnings measure (regular pay or total pay including bonuses);
which price index was used (the ONS uses CPIH for its headline real earnings figures; some analysis uses CPI);
the period, since real pay is usually quoted as a three-month average compared with a year earlier; see rolling average .
Our answer on whether wages are rising faster than inflation points to the latest release.
Common traps
Unstated base year. "In real terms" with no price year is incomplete. A proper statement says, for example, "in 2025-26 prices".
Mixed vintages. Deflators are updated every quarter and after each fiscal event. Take both index values from the same release.
Financial and calendar years. The deflator sheet has separate columns. Spending usually runs April to March; see financial year and calendar year .
Real terms versus per person. A budget can rise in real terms and fall per head if the population grows faster; see per capita .
Adding percentages. Real growth over several years compounds; you cannot add annual rates. Our guide to percentage claims shows the check.
Checklist
Identified whether the claim is in cash or real terms
Found the price year the real-terms figure uses
Chosen the right index (GDP deflator or CPI)
Took both index values from the same release
Matched financial or calendar years
Applied cash × (index B ÷ index A)
Noted whether future years rely on forecasts
Official sources used in this guide
Sources: HM Treasury: GDP deflators at market prices, and money GDP (collection), HM Treasury: GDP deflators, September 2026 (Quarterly National Accounts), HM Treasury: how to use the GDP deflator series, practical examples, ONS series D7BT: CPI index (2015 = 100), ONS series L8GG: GDP deflator, financial years, Bank of England inflation calculator