25 years of the £2 coin – worth half its value to UK consumers since circulation

3 min read 30 Jun 23

The £2 coin has celebrated its 25th birthday, originally coming into circulation in the UK on 15 June 1998. But analysis from M&G’s Investment Office* finds inflation has significantly eroded the purchasing power of the coin over that time – showing the impact inflation can have on long-term savings.

In this article

When is £2 not really worth £2?

It might sound strange to suggest that £2 might not always be worth £2. But when you consider the impact of inflation, the buying power of that same £2 could be much less when its value is left to erode over time.

Let’s look at an example: imagine you’d decided to keep a brand new £2 coin in a piggy bank back in June 1998 – how much would it be worth now?

Taking into account the effects of inflation, our analysis showed that the same £2 coin would be worth just £1.07 in real terms today**. However, if you’d decided to invest £2 in the FTSE All-Share Index*** over the same 25-year period, although this would’ve had a greater element of risk, it would be worth just over £6****.

This isn’t a real life example or a recommendation. It's important to remember that past performance isn’t a guide to future performance. The value of your investment can go down as well as up so you might not get back the amount you put in.

However, inflation doesn’t just impact our savings and investments – it has a day-to-day impact on the goods and services we regularly buy, too. So, as the price of those items goes up, your money won’t stretch as far as the same amount would now.

Shopping baskets much lighter than in 1998

The Office for National Statistics (ONS) measures inflation by comparing the cost of a typical ‘basket’ of everyday goods and services from one year to the next – the change in the cost is used to calculate the rate of inflation. But what impact has that change in cost had on a typical £2 coin?

25 years ago, you could buy four loaves of bread for £2, with the same coin buying you just one loaf in the shops today. And it’s not just our food shopping that’s impacted – filling up your car with a £2 coin in your pocket will now only get you 1.4 litres of petrol at the pumps, whereas it would’ve bought you 5 litres of petrol back in 1998 – over 3.5 times more than you can now.

Some other common items are shown below:

Items bought with a £2 coin 2023 1998
Home brewed cups of tea 65 160
Loaf of bread 1 4
Pints of lager 0.4
 2
Litres of petrol 1.4 5
Freddo 8 20
Big Mac 0.4 1

Source: ONS, Tesco and BigMac Index/local McDonalds menu as at 2nd June 2023

Is there an alternative to cash savings?

If inflation is higher than the rate you can achieve on cash savings, the buying power of your money will always be eroded. But is there an alternative?

Parit Jakhria, Head of Long-Term Investment at M&G, commented: “With huge rises in the cost of living across the UK in recent years, we are all feeling how dramatic the impact of inflation can be on our shopping baskets. However, it is equally important to see the longer-term impact of how inflation can eat away at your savings. At a time when every pound counts, the 25-year anniversary of the bimetal £2 coin serves as a reminder of the long-term corrosive effects of inflation. Yet for those able to put their cash to work and accept an element of risk, our analysis shows that you can turn even a modest investment into a healthy pot of money over time, and more importantly maintain and even increase your real purchasing power.”

Sources of help

If you’re interested in reviewing your long-term savings plans to help protect against the effects of inflation, we recommend that you speak to your financial adviser. If you don’t have a financial adviser, you can find one here.

* M&G’s Investment Office is the team behind our flagship over £58 billion PruFund strategy. Find out more about our PruFund range of funds.

** According to Datastream as at 2 June 2023. 46.5% decrease in value.

*** Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2018. FTSE Russell is a trading name of certain of the LSE Group companies. e.g., “FTSE®” “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®, The Yield Book®,” are a trade mark(s) of the relevant LSE Group companies and are used by any other LSE Group company under license. “TMX®” is a trade mark of TSX, Inc. and used by the LSE Group under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

**** Datastream as at end May 2023.

 

© Prudential 2023

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