Removing the 1p and 2p from circulation would not cause inflation according to analysts at the Bank of England.
Critics say that scrapping copper pennies would lead to price increases as items could potentially be rounded up to the nearest pound by retailers.
But experts argue that the impact on consumers would be minimal because prices would be rounded up on the final bill rather than on individual items. This has been the case in other countries that have removed their low denominations coins, such as Argentina or Australia.
Bank of England economic analysts Marilena Angeli and Jack Meaning say that even if individual prices were rounded on all payments, the evidence suggests there would be “no economically significant impact on inflation”.
While the government has not made any official announcement that the coins will be abolished, the blog has sparked further debate on the impact of removing them from circulation.
The analysts argue that due to the low percentage of cash payments in the UK – currently just 3% of all sales – the vast majority of payments would not be affected.
Rounding up or down to the nearest 5p would only apply to cash payments. Card or electronic payments would likely continue to charge the exact amount.
There is also clear evidence that the number of items sold at a price ending in .99 have reduced in recent years and now only account for just over 12% of all prices.
“This is mirrored by an increasing tendency for prices to end in round numbers and suggests that, over the past few years, there has been a declining proportion of items whose prices are likely to be rounded up if the 1p and 2p coins were abolished,” say Ms Angeli and Mr Meaning.
Lost down the back of the sofa
Consumers are also far less likely to spend their pennies, with a Treasury consultation document on cash and digital payments revealing that six out of every ten 1p and 2p coins are used just once before they drop out of circulation.
This mirrors the reduced production rates at the Royal Mint which manufactured half the amount of 1 and 2 pence coins in 2016-17 compared with the previous year.
Whether the low denomination coins will be removed remains to be seen but there is a precedent in the UK with the halfpenny being abolished in 1984.
Ms Angeli and Mr Meaning suggest that the same arguments made in the early 1980s around the inflationary impact of removing the tiny coin are now being made again but the evidence and UK price data suggests that these concerns remain “unfounded”.