Scrapping 1p and 2p coins will have ‘no significant impact on prices’

Written by Adam Cadle
23/08/2018

Removing the 1p and 2p coins from circulation would have “no significant impact on prices” because price rounding would be applied at the total bill level, not on individual items and would only affect cash transactions, two Bank of England experts have said.

Writing on the BoE’s blog, Bank Underground, Marilena Angeli and Jack Meaning said “even if individual prices were rounded on all payments, analysis of UK price data suggests no economically significant impact in inflation”.

“Economies that have removed their low denomination coins, or introduced rounding have moved to a system in which rounding is applied to the final bill, not to individual items. In such a system, the prices of each item need not be affected at all. More than this though, if you buy more than one item at a time, the bias in the probability that your total bill will need to be rounded up rather than down falls.

“Second, in most existing cases, rounding is only applied to cash payments – payments by card or similar electronic means would likely still be charged the exact amount. For most advanced economies cash payments tend to make up a low proportion of spending by value. In the UK, for instance just 3% are made using cash. What is more, low value payments, where cash has always been king, have been encroached on in recent years by the adoption of new technologies such as contactless cards.”

Finally, the pair said “the prevalence of item prices ending in .99 has fallen in recent years, by approximately 1.5 percentage points since the beginning of 2012 and 2 percentage points since its peak in mid-2015”.

“It now only accounts for just over 12% of prices. This is mirrored by an increasing tendence for prices to end in round numbers and suggests that, over the past few years, there has been a declining proportion of items whose prices are likely to be rounded up if the 1p and 2p coins were abolished.”

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