25 years of the £2 coin and the scourge of inflation.
• Since circulation of the bimetal £2 coin in 1998, inflation has wiped out almost half of its real value
• £2 invested in the FTSE All-Share in 1998 would be worth just over £6 today
• £2 may not get you even half a pint of lager today, compared to 2 pints 25 years ago
Written by Jonathan Wade
Director
On the 25th anniversary of the circulation of the bimetal £2 coin (15th June 2023), an analysis from M&G’s Investment Office looked at how inflation has significantly eroded its purchasing power over the last quarter of a century, also demonstrating the impact it can have on long-term savings when they are not put to work.
Analysis shows that a bimetal £2 coin – first circulated on 15 June 1998 – left in a piggy bank would be worth just £1.07 in real terms today1 or £2.90 if left in a typical cash savings account2 - but just over £6 if invested in the FTSE All-Share Index over the intervening 25 years.
So what will £2 buy you now compared to 1998
M&G’s analysis of ONS data shows that £2 coins will buy consumers a lot less in the supermarket than 25 years ago. Shopping basket essentials have taken a hit, with £2 only buying you one loaf of bread in shops today, compared to four loaves 25 years ago. Meanwhile sweet-toothed consumers could pick up 20 Cadbury’s Freddos bars in 1998, but are left with just eight bars with their £2 coin today.
However, people aren’t just left with less in their supermarket trolley. Today you would get less than half a pint of lager with your £2 coin, compared to two pints in 1998. Furthermore, a £2 coin will now only get you 1.4 litres at the petrol pump, whereas it would have bought you 5 litres of petrol 25 years ago.
Source: ONS, Tesco and BigMac Index/local McDonalds menu as at 2nd June 2023
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 could turn even a modest investment into a healthy pot of money over time, and more importantly maintain and even increase your real purchasing power.”
Investing £2 in a balanced, diversified multi-asset fund5, since 1998 could now be worth £7.605, leaving you able to buy a lot more for your hard-earned money6.
It can be tempting to react to gloomy economic news and volatile markets, but this serves as a reminder of the importance of taking a long term view and making your money work for you to generate a ‘real’ return.
If you would like to discuss any of the issues raised in this article, please feel free to phone one of our advisers.
1 According to DataStream as at 2nd June 2023. 46.5% decrease in value 2Source: Macrobond and Federal Reserve Economic Data (Fred). The rate is representative of sight deposit rates UK households could get from bank savings in an instant access account without facing any penalty either on withdrawal or by closing of the account. 3Datastream as of end May 2023
5Based on Prudential With-Profits Fund (in which the PruFund range invests fully) performance data 15th June 1998 to 15th June 2023 6Remember, the value of your investment can go down as well as up, so you might get back less than you put in. Past performance isn’t an indicator of future performance.
Source: Data provided by FE fundinfo
Research and content provided by M&G