How prices have soared over 40 years

Thanks to rising prices, £1 today has the same buying power as 9p did back in 1973.

Over the past four decades, the value of the 'pound in your pocket' has declined by more than nine-tenths (91%), according to a new report.

Using data from sources such as the Office for National Statistics (ONS) and Halifax, Lloyds Bank has calculated that £1 today has the same buying power as 9p had in 1973. This decimation of the buying power of a pound over four decades is caused by persistent price inflation.

As a result, £1 million in 1973 would provide same spending power as £10.5 million today. So to enjoy the same standard of living as a millionaire in the early seventies you'd need over ten million quid today.

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Prices soar up, up and away

Lloyds Bank calculates that, on average, retail prices have climbed more than tenfold since 1973. As a result, a mere £9.48 in 1973 would provide the same spending power as £100 today. Of course, UK wages also have risen considerably over the past 40 years although, unfortunately, they have barely budged since the global financial crisis of 2007-09.

The research has worked out that the purchasing power of the pound has been eroded at an average rate of 6.1% a year over the past 40 years. What's more, at certain times in recent British history – when inflation was running rampant – prices soared for year after year after year.

For example, between 1973 and 1983, prices shot up at an average rate of 13.6% a year – the steepest increase in inflation in modern history. In the most recent decade surveyed, 2003 to 2013, inflation averaged a more modest 3.3% a year. At the other end of this scale, prices rose by a mere 2.6% a year from 1993 to 2003, when higher interest rates kept inflation under control.

When beer was 14p a pint

To show the falling value of money, Lloyds Bank price-checked household items such as bread, milk, eggs and beer in 1973 and 2013.

For instance, a pint of draught lager priced at just 14p four decades ago costs an average of £2.87 today. In other words, the price of a pint has rocketed almost twenty-fold, rising by an astonishing 1,948% in 40 years.

Likewise, the price of a pint of milk has increased from 6p in 1973 to 46p today, up 667% in 40 years. And a loaf of bread costing 11p in 1973 now sets you back £1.30, up almost eleven-fold (1,082%) in four decades.

Forty years of price pressures

To show you how prices have soared since 1973, Lloyds Bank supplied the following table, showing the prices then and now of everyday essentials.

As you can see, the prices of various different goods have risen at very different rates.

Beer costs almost 20 times as much today as it did in 1973, partly due to large increases in beer duty (alcohol taxation) over successive parliaments. That's the equivalent of an average yearly rise of 7.7% in the price of a pint for 40 years in a row.

Similarly, as the price of staples such as wheat has soared over decade, so too has the cost of bread (up 1,082%) and flour (up 724%). At the lower end of this spectrum, we have goods whose cost has climbed more modestly over time. For example, the price of carrots has risen in price by 723% (5.1% a year), milk by 667% (4.9% a year) and apples by 622% (4.7% a year).

Prices of property, fuel and gold explode

As well as looking at household essentials, Lloyds Bank also price-checked car fuel, house prices and the value of gold. All three have exploded in value in four decades, as this table shows.

As you can see, the cost of fuelling a car has really pulled away since 1973. A litre of diesel costing just 8p in 1973 now retails for £1.41, up 1,727% (7.4% a year). Of course, the price of fuel has soared since the 'oil shock' of the mid-seventies, made worse by punitive UK taxes on petrol and diesel.

Likewise, the cost of a detached home has sky-rocketed, rising from under £17,000 in 1973 to over £305,000 today. Note that this gain of 1,699% over 40 years (7.3% a year) will be impossible to replicate over the next 40 years. Otherwise, a decent-sized home would cost a staggering £5,492,560 in 2053.

Lastly, the price of gold has also exploded since 1973. Over forty years, an ounce of gold has risen in value from £34 in 1973 to £1,051 today, up 2,952% (8.8% a year). This clearly demonstrates the yellow metal's worth as a long-term hedge against inflation.

The future value of your pound

Looking ahead to the next 40 years, were retail prices to rise by 2.8% a year, then the value of your pound would decline by a further two-thirds (67%) by 2053. In this scenario, you would need £311 in 2053 to have the same spending power as £100 today. Also, to be a millionaire in today's terms, you'd need to be worth over £3 million in 2053 to enjoy the equivalent lifestyle 40 years from now.

In other words, if you want the buying power of your money to keep up with rising prices, then be sure to get good pay rises, while investing part of your disposable income for long-term, above-inflation returns. Otherwise, your future living standards are likely to fall.

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