The value of money has fallen by 96% in the past 60 years, according to new research from Lloyds Private Banking.
The research shows that a 23-fold increase in retail prices means that someone today would need £113 to have the equivalent purchasing power of £5 in 1957 (see Table 1).
The purchasing power of money has eroded at an average rate of 5.3% a year over the past 60 years.
By decade, retail prices grew the most rapidly between 1967 and 1977 at an annual average rate of 11.3%.
The lowest increase in inflation came over the most recent period 2007 to 2017 with an annual increase of 2.7%.
At the same time, the average weekly wage has increased 4,142%, from £12 in 1957 to £509 today.
The findings come ahead of tomorrow’s deadline to spend paper £5 notes issued by the Bank of England before they become illegal tender.
Table 1: Today’s equivalent to £5 in the past
|£5 in||Equivalent spending power in 2017|
Source: Lloyds Bank calculations based on ONS figures, March 2017
Looking to the future, if retail prices were to rise by the current rate of retail price inflation, 2.8% annually, the value of money would decline by a further 80% over the next 60 years.
In this event, someone would need £26.22 in 2077 to have the same spending power as an individual with £5 today.
How far does a fiver go these days?
The prices of essential household items have also risen substantially since 1957 with the average price for a loaf of bread increasing over 20-fold, from 5p to just under a pound (99p in 2017) and a pint of milk is up from 3p to 43p (1,198% rise).
The cost of a kilo of cheese has gone up from 23p to £8.38 today and a hearty pork loin now costs £7.40 per kg compared to just 48p six decades ago.
A basket of these goods plus a bag of sugar, a kilo of butter, a dozen eggs and 1.5kg self-raising flour would have cost a little over £2 in 1957; today the same basket of goods costs, on average, £23.99 – an increase of 1,068%. (See Table 2)
Importance of long-term investing
While retail prices have increased over the past 60 years, the value of the stock market has risen faster.
If you had invested £5 in UK shares in 1957, your fiver would now be worth £427 – an increase of 8,443%.
Sarah Deaves, private banking director at Lloyds Private Banking, said: “The old £5 note issued in 1957 had a strong purchasing power back then when households could buy a basket of goods from their grocer with change left over for a pint or two of beer.
“Today that purchasing power has been eroded significantly due to the substantial rise in the general level of prices.
“It is interesting to note that despite the ups and downs in the stock market, UK shares have outpaced cash over this period.
“If people had invested in 1957 their investment would have outstripped inflation many times over, which suggests that taking a longer-term view of investing can pay dividends.”
Table 2: The changing cost of everyday items, 1957 – 2017
|Estimated Average price 1957 (£)||Average price 2017 (£)||% change 1957-2017|
|Bread: white loaf, sliced, 800g||0.05||0.99||2061%|
|Milk: Pasteurised, per pint||0.03||0.43||1198%|
|Butter: home produced, per 250g||0.09||1.40||1410%|
|Sugar: granulated, per Kg||0.07||0.63||872%|
|Eggs: size 4 (55-60g), per dozen||0.19||2.04||975%|
|Self Raising Flour, per 1.5 Kg||0.10||0.82||742%|
|Ham, per 113Kg||0.82||1.90||131%|
|Pork loin, per 100kg||0.48||7.40||1441%|
|Cheese: cheddar type, per Kg||0.23||8.38||3542%|
|Beer, per pint||0.05||3.00||6178%|
Sources: ONS (all items) (March 2017)