Households are £2.1 TRILLION worse off amid soaring interest rates

Economy
By Liam

Households are £2.1 TRILLION worse off amid rising interest rates and property prices and pensions falling in value

  • Household wealth has fallen by almost a quarter since 2021, estimates show

By Lea Montebello

Updated:

Rising interest rates have left households a total of £2.1 trillion worse off as property prices and pensions continue to fall in value.

Household wealth has fallen by nearly a quarter since 2021, according to estimates from the Resolution Foundation think tank.

The total value of households peaked at 840 percent of the total economy in 2021, but fell to about 650 percent in the first quarter of 2023.

This is the biggest decline as a percentage of the economy since the end of World War II, giving homeowners and retirees a major headache.

If the combined £2.1 trillion loss were shared by the country’s estimated 28.2 million households, it could theoretically mean that families lost £74,468 each.

Household wealth has fallen by nearly a quarter since 2021, according to estimates from the Resolution Foundation think tank [File image]

Britain’s declining wealth can be attributed to the Bank of England’s rapid rise in interest rates, the think tank said.

Food inflation up to 25%

Food inflation of 25.8 percent has hit shoppers over the past two years, with some products almost tripling in price, according to Which?

The figure came from the consumer group’s analysis of more than 21,000 foods and beverages across eight major supermarkets. The biggest increase was 175 percent for a six pack of Mr Kipling Bakewell Cake Slices at Sainsbury’s, from £1 to £2.75 on average.

The price of bakery products typically increased by more than 30 percent in the second quarter of 2023 compared to the same period in 2021.

On average, cheese increased by 35 percent, while meat increased by 24 percent.

After 13 increases since the end of 2021 to curb high inflation, the Bank’s base rate is at 5 percent and experts estimate it could rise to 6.25 percent by Christmas.

This has caused mortgage rates to skyrocket, house prices to fall and the price of government and corporate bonds to plummet, decreasing the value of pensions.

But the report – part of a collaboration with the abrdn Financial Fairness Trust – suggests that continued higher interest rates could lower house prices in the long run and make it easier to achieve a decent standard of living in retirement by increasing returns on retirement savings. .

And while rising rates are painful for today’s homeowners – with the 1.7 million households taking out a new mortgage next year and their annual repayments expected to rise by more than £3,000 on average – falling house prices will benefit young people on the move. trying to get to the house ladder.

Ian Mulheirn, from the Resolution Foundation, said: ‘Over the past four decades, wealth across Britain has soared, even when wages and incomes have stagnated.

But rapid rises in interest rates have put an end to this boom and led to the largest drop in wealth since the war, at £2.1 trillion.”

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