UK household wealth growth about to make a U-turn

The Bank of England has reason to pat itself on the back. During the financial crisis of 2007-2009, things could have taken a very ugly turn if it hadn’t cut interest rates to record lows and hadn’t started printing money.

A decade later, the results of this policy are plain to see: despite the deep financial crisis, household wealth increased by almost 60% since 2006, to £10.5 trillion at the end of 2016, according to research carried out by Lloyds Bank Private Banking.

The rise in total household wealth of £3.9 trillion is equivalent to £143,059 per household within the decade.

“This means the value of household wealth has grown faster (59%) than both the Retail Price Index (up 33%) and gross household disposable income (up 37%) in the past decade,” the report says.

I am attributing much of this to the Bank of England because rapidly increasing house prices played an important role in the rise of household wealth, as did financial assets. Both were spurred on by the extraordinarily easy monetary policy.

The contribution of housing wealth in the household portfolio mix was 42% last year, while financial assets accounted for 58%.

The study found that the value of the UK private housing stock has risen to £4.4 trillion last year from £2.6 trillion in 2006, driven by growth in average house prices, which were 51% higher over the period, and the number of privately owned homes, which increased by 9% to 23.4 million.

Financial assets increased one and a half times in value in the decade, to £6.1 trillion. Pension funds and life assurance make up 77% of households’ total financial assets, with 21% in the form of deposits with financial institutions.

The market value of pensions increased by 65% to £4.0 trillion in the period, while the value of equities and investment funds increased by a much more modest 5%, to £687 billion.

Unfortunately, with Brexit reducing the pound’s value versus other currencies, all this wealth has diminished by around 15% to the euro since last year’s referendum to leave the European Union. This time, there will be nothing the Bank of England can do to help. Brexit was “people’s will”.

Key factors to watch next week:

Monday

— Eurozone industrial production

Tuesday

— UK consumer price inflation