Decreasing Affluence Among the Wealthy: United Kingdom Witnesses One of the Largest Household Wealth Drops Among Major Economies
Britain's rich folks are faltering, and the U.S. ain't the only one dealing with a declining economy. Last year, the UK suffered the second-biggest plunge in average household wealth of any major economy, according to a report from UBS.
Real-term household wealth, adjusted for inflation, dropped by 3.6% across Britain in 2024. High-income households took the worst hit, with their wealth growing at a slower pace or even shrinking, causing the overall average to drop.
But there's a silver lining: those with lower incomes saw an increase in their real wealth, making the distribution of wealth slightly more equal. Paul Donovan, chief economist at UBS Global Wealth Management, pointed out that this slump in wealth was primarily due to higher-income households holding more equity and suffering from the poor performance of the U.K. equity market compared to European and U.S. markets.
Michel Frey, head of UK high net worth business in UBS’ wealth management arm, adds that the stumbling block for wealth accumulation in 2024 was a combination of cost of living pressures and higher interest rates outpacing growth in financial markets and property prices. This combo made it tough for some folks to hold onto or build their wealth, particularly among high net worth individuals (HNWIs).
Despite the fall in real-term household wealth, the median wealth in Britain rose by more than 5% in 2024. So even though the rich might feel a bit poorer, some folks might still be feeling richer due to this growth in their income bracket.
It's unclear how these shifts will affect Britain's future economic landscape, but one thing's for certain—the game of economics is always challenging to predict. As Rachel Reeves mulls considering a softening of non-dom inheritance tax rules, we'll have to wait and see how the rich choose to respond.
Some other economies faced a similar predicament. Turkey, Mexico, France, the UAE, mainland China, and Russia also saw a drop in average real-term household wealth in 2024, according to UBS. Turkey, specifically, took the hardest hit, with a 14% decline in average real-term household wealth last year.
If you're interested in diving deeper into the factors affecting wealth distribution, here's a quick rundown:
- Rising cost of living and increasing debt burden caused financial stress for many households.
- Earnings and income distribution mean that higher-income households experienced more significant wealth erosion due to economic pressures on earnings.
- Increased taxes targeted at high net worth individuals further squeezed their wealth.
- Structural economic shifts and regional inequality deepened wealth inequality and hurt less-educated and lower-income groups.
HNWIs bore the brunt of these factors, with the tax changes specifically undermining their wealth accumulation and incentivizing some of them to leave the U.K.
So, are you feeling richer than a year ago? It's a question worth considering as we navigate these economic waters.
- High-income households in Britain, who hold more equity, experienced a slowdown in wealth growth or even a decline, causing the overall average household wealth to drop due to the poor performance of the U.K. equity market compared to European and U.S. markets.
- Mickey, a high net worth individual (HNI), might find it challenging to hold onto or build their wealth due to cost of living pressures and higher interest rates outpacing growth in financial markets and property prices.
- Despite the decline in real-term household wealth in Britain, some folks may still feel richer due to growth in their income bracket, as the median wealth rose by more than 5% in 2024.
- Cross-border investing in stocks, pensions, mortgages, and other financial instruments could potentially serve as a means for HNWIs to manage and grow their wealth, amid economic uncertainties and the ongoing changes in personal-finance landscapes.
