Inflation rise ‘boosts case’ for killing off the penny

A RECENT rise in inflation makes now a good time to kill off copper coins, according to Bank of England economists.

“As inflation steadily erodes the purchasing power of low-denomination coinage, the case for [the] removal [of copper coins] becomes stronger,” wrote Marilena Angeli and Jack Meaning, of the Bank of England.

Figures show low-value coins end up at the “back of the sofa” or “lost to the ether”, adding to the case for scrapping the penny, according to Bank research.

Six out of 10 1p and 2p coins are used only once before they are abandoned, and fears that removing the coins from circulation would add to inflationary pressures are ill-founded, the economists said.

Fewer items are sold at the 99p price mark nowadays, meaning fewer would be rounded up to whole figures if 1p and 2pc coins were abandoned.

While 70pc of prices already end in zero or 5p increments, the remaining 30pc may need to be rounded up or down by small amounts. Even in the unlikely event scrapping the penny caused a slight uptick in inflation, it would be a “one-off price level shock” and would not necessarily trigger a sustained change to inflation, Ms Angeli and Mr Meaning claimed.

Past efforts to take the penny out of circulation have faced considerable resistance. When a consultation on cash from the Treasury was put forward in March this year, there was a backlash from charities and arcades.

Other international examples in the US, Canada, Germany and Belgium show that there is little or no impact on overall prices in an economy if low-denomination coins are abolished.

“Even in the UK, there is a precedent with the abolition of the halfpenny in 1984. Many of the [unfounded] arguments that were made in the early Eighties around the inflationary impact of removing that particular tiny coin are being made now,” Ms Angeli and Mr Meaning said.