On the 25th anniversary of the circulation of the bimetal £2 coin in the UK, new analysis from M&G’s Investment Office, the team behind the company’s flagship over £58 billion PruFund strategy, finds inflation has significantly eroded its purchasing power over the last quarter of a century, demonstrating the impact it can have on long-term savings when 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 today[1] or £2.90 if left in a typical cash savings account[2] – but just over £6 if invested in the FTSE All-Share Index over the intervening 25 years[3].
Shopping baskets much lighter than in 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 with the same £2 coin 25 years ago.
| 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
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 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.”
Analysis showed further impacts of inflation since the introduction of the bimetal £2 coin:
- The Royal Mint does not disclose the cost of minting coins, or the exact weights of each metal used. However, the M&G analysis estimates that the current metal value of each £2 coin is around £0.09. This marks over a 450% increase in value of the physical metal used in the coin since its first circulation[4].
- Investing £2 in a multi-asset fund, such as M&G’s flagship smoothed multi-asset PruFund range[5]since 1998 could now be worth £7.60, leaving you able to buy a lot more for your hard-earned money.
