Surging interest rates have led to the largest contraction in UK household wealth on record, according to a new report.
The value of assets has collapsed by just over £2tln since early 2021, driven largely by a sharp fall in bond prices following rising UK borrowing costs, economic think tank the Resolution Foundation said, quoted in City AM.
Household wealth as a share of the economy has plummeted by 185 percentage points since 2021 as a result.
Wealth as a share of the entire economy is now down to 650%, the Resolution Foundation said, a reversal from the over decade-long boom in property, debt and equity values.
“Holders of UK government debt have seen around a 30% loss in the value of their investments since the Bank of England started raising interest rates [in December 2021], and holders of sterling corporate bonds have lost 20%,” the report said.
“House prices have also started to weaken, with inflation-adjusted prices already down by seven percent from their peak in mid-2022,” the think tank added.
Traders are being forced to cut the price of bonds to bring the yield closer to the rate investors could gain elsewhere when banks raise interest rates.