Credit crunch wipes out an average of £40,000 of wealth per adult in the UK
(16/03/2009)

The deepening credit crisis has erased around £1.9 trillion of UK household wealth since July 2007, according to analysis by PricewaterhouseCoopers LLP. In total, wealth from housing and equities is estimated to have fallen by around 28%, amounting to a total loss of wealth of around 130% of GDP. With average UK house prices down by around 20% from their peak, estimated housing wealth losses are around £800 billion. Meanwhile sharp falls in stock markets (totalling around 40% since mid-2007) have pushed the estimated UK household wealth loss from equities up to around £1.1 trillion.

Based on published research into the relationship between changes in household wealth and expenditure(3), PwC estimates that the £1.9 trillion fall in UK wealth could ultimately reduce annual UK expenditure by around £45bn (around 3% of GDP or around 5% of household spending).

John Hawksworth, head of macroeconomics, PricewaterhouseCoopers LLP, said: “Translating these figures to a more individual perspective, the estimated loss of wealth of £1.9 trillion would equate to around £40,000 on average per adult (aged 18+) in the UK, although clearly these losses will vary considerably across the population.

“The knock-on effect of this level of wealth destruction will result in significantly more belt tightening and reduced spending by households over the next year and this situation could be exacerbated by expected further falls in house prices over this period.

“Nonetheless as we begin to see the positive effects of recent interest rate cuts, planned money supply increases and fiscal stimulus measures coming through, we would hope to see a gradual economic recovery taking effect later in 2010 and beyond.”