Published on August 31st, 2018 | by Sam Rose
Inflation to Increase if 1p and 2p Axed?
Could we be waving goodbye to 1p and 2p coins? And if so, what effect will this have on UK inflation rates? We take a closer look.
In a new paper published last Wednesday, analysts at the Bank of England believed that through their experience and with the amount of literature available on the topic, that inflation would not affect the axing of 1p and 2p coins. Whilst often argued by many that 1p and 2p coins have now become more and more irrelevant over the years, other have expressed concern that scrapping them would cause an increase in prices in the UK. However, along with their original stance on the subject, the Bank of England firmly believe the argument centered on inflation is “deeply flawed on a number of levels”.
Rounding Up and Rounding Down System
Much of the worries surrounding the topic relate to how sellers and retailers would deal with a lack of 1p and 2p coins in their cash drawer. It was previously suggested that sellers would have to increase the overall price of individual items to compensate. However, the Bank of England have been quick to stress that rather than seeing an increase in pricing structure, sellers and retailers would only need to round up or down transaction amounts to the nearest 5p when calculating final amounts.
The BoE also made light of this type of system being used in several other countries and there being no reports of an increase in inflation rates. We can even look back at the last withdrawal of a UK coin, the half penny in 1984, to see that there is perhaps no real threat to a rise of inflation due to copper coins potentially being scrapped.
Have 1p and 2p Coins Become Irrelevant?
When viewing the amount of times we now use 1p and 2p coins compared to several decades ago, it’s not too difficult to see why the government might be implementing the change. Compared to the cost of production for the copper coins, its usefulness has been called into question. This is further backed with the statistic that only 6 out of every 10 1p and 2p coin is currently used for transactions in the UK. Reasons cited for this have been put down to coin collection jars, losing copper coins at home or misplacing them altogether.
There is also the factor of card and contactless payments now becoming the preferred format of payment in the UK, a topic we recently covered in a previous article on the Post Office Shop Blog. With a majority of retail transactions now taking place via card and contactless means, there won’t be a need to round prices up or down if 1p and 2p coins were to disappear from circulation. In fact, figures suggest that roughly 70% of prices for products in the UK end in a zero or a five, so the need for a rounding system might not be necessary.
A drop in production might also be contributing factor to the call for a change to copper change. Production of 1p and 2p coins by the Royal Mint is falling at a sharp rate. Only 288 million were minted last year. This is a stark figure compared to 500 million just a few years ago.
Time to Cash in on Rare Coins?
Whilst the discussion right now surrounds the axe of the established 1p and 2p coins, it might be time to check if you’ve got any rare currency hidden away at home. If you’re unsure on how much your coins might be worth, we’ve got several guest blog articles here on the Post Office Shop Blog to help you out including a list of rare coins to search for and a top 10 of the rarest coins in circulation.
Once you’ve discovered the approximate value of your forgotten coins, why not take a look at the Change Checker section on the Post Office Shop website, where you can find a whole range of coin collecting essentials and helpful items to prove the true worth of your currency relics.