Axing 1p coins ‘would not increase inflation’

Bank of England economists have waded into the debate over the future of 1p and 2p coins after claiming that scrapping coppers from circulation would not push up inflation.

In a Bank of England blog post yesterday, two analysts said their research and the “overwhelming weight of literature and experience” suggests that retiring 1p and 2p coins would have “no significant impact on prices”.

The authors – Marilena Angeli and Jack Meaning – argue fears over the rounding up of prices are overdone, given that doing away with low denomination coins would only affect cash payments, and even then would likely see prices rounded up at the total bill level, not individual items.

“Even if individual prices were rounded on all payments, analysis of UK price data suggests no economically significant impact on inflation,” they wrote.

They calculate that even if retailers round up all prices to the nearest 5p, inflation would only be pushed up by 0.07 percentage points.

“As inflation steadily erodes the purchasing power of low denomination coinage, the case for its removal becomes stronger,” they said.

Their comments risk stoking further controversy on the subject, after the Treasury called for evidence on cash and digital payments in March.