British households have seen a significant decline in their wealth, with the average Briton now more than 20% poorer than five years ago. This decline is the steepest among all advanced economies since the pandemic. The typical individual's wealth has dropped by approximately £28,500 since 2020, when adjusted for inflation, leaving the median adult with assets of just over £95,500 last year.
This decline in wealth is a stark contrast to the rising prosperity the UK once prided itself on. The country's wealth has been eroded at a pace after inflation surged in the wake of the pandemic and Russia's invasion of Ukraine. Britain absorbed a worse inflation shock than most of its peers, with energy costs jumping and a squeeze on living standards that continues to shape the picture.
A cooling housing market has further deepened the slump, with British families faring worse over the past five years than households in Turkey, Bulgaria, Mexico, and Kazakhstan. The UK's housing market has been a significant contributor to the decline in wealth, with UK house prices rising by 26% since the start of 2020, but consumer prices climbing by 32% over the same period, reducing the real value of the money tied up in the typical home.
The wealth of a typical individual has tumbled by more than 23% on both the mean and median measures since 2020, ground down by a spike in inflation that peaked at 11.1% in October 2022. The housing market has added to the strain, with the real value of the money tied up in the typical home being quietly whittled away.
The fall in wealth has landed alongside incomes that have struggled to keep up with prices, a double squeeze on households. The tax burden is set to climb to its highest level since the Second World War, driven in part by the long freeze in income tax thresholds. This adds to the pressure on households, making it more difficult for them to make ends meet.
The picture is not uniformly bleak across the globe, with some countries experiencing significant gains in wealth. The biggest gains came in South Korea, where average wealth rose 55%, along with Russia and Croatia. Among G7 economies, the largest rise was in Japan, where median wealth climbed 51%. However, for many households in the UK, the damage to accumulated wealth has already been done.
The latest data has sparked concerns about the state of the economy and the need for policymakers to address the issues facing households. Business confidence has fallen again in June, with businesses calling for meaningful improvements in areas like regulatory cost, tax complexity, and government decision-making to unlock spending and promote growth.
However, the government remains optimistic about the economic outlook, citing steady inflation and the UK's lead in G7 growth at the start of the year. The IMF and OECD have both upgraded growth forecasts, and real wages have risen more in the last year than in the first ten years of the previous government. But for many households, the decline in wealth has already had a lasting impact.
