Biggest drop in Britain’s wealth for 60 years.
Britain’s economic wealth has suffered its biggest decline in 60 years as the worst recession on record eliminated jobs and curbed spending, the Office for National Statistics said. Gross domestic product per person dropped 5.5 percent from a year earlier, the most since 1949, the statistics office said in an e-mailed report from London today. However, household disposable income per person increased by 1.2 per cent, helped by falling mortgage-interest costs, the ONS said.
The recession, which lasted for six quarters and ended in late 2009, removed more than 6 per cent of the economy and 600,000 jobs, making it the deepest since records began in 1955.
Britons are now bracing themselves for the deepest government spending cuts since World War II, which will lead to the loss of almost half a million public-sector jobs in the next four years.
Household net wealth rose 7.3 percent to £117,000 per person in 2009, the ONS said. That’s still below a peak of £128,000 in 2007 as a result of the drop in house prices during the recession, the statistics office said.
Total household debt as a percentage of household disposable income declined to 161 per cent in 2009 from 169 per cent a year earlier, it said.
Economists attributed the increase in wealth of households to babyboomers cashing in on house prices.
They warned high prices are unsustainable and that the typical value of a home in Britain is likely to fall further.
House prices climbed from an average of £43,000 at the beginning of 1987 to £199,000 before the credit crisis struck in August 2007. They have since dropped to £165,000 amid a lack of mortgage finance.
Vicky Redwood, of Capital Economics, said: “The increase in wealth is outpacing the growth in the wider economy, mainly due to developments in the housing market. Not withstanding the fall in prices in 2009, house prices have soared over that period. We think prices are still overvalued relative to household income so wealth will not stay this high.”
Figures from the Council of Mortgage Lenders showed that 8,900 properties were taken into possession in the third quarter of this year, down 5.3 per cent or 500 properties compared to the second quarter.
Despite the reduction, economists said the lack of improvement among the most serious arrears cases does “not bode well” for the weak period of economic growth that they believe lies ahead.
Howard Archer, an economist at Global Insight, said: “A significant number of homeowners are still at risk, particularly if economic activity slows markedly as tighter fiscal policy bites. The substantial fiscal squeeze will increasingly hit public sector jobs and consumers’ pockets, while households already face high unemployment, muted earnings growth and elevated debt levels.
“There will also be a lagged impact from the recession as relatively gradual recovery overall will mean that many people who have lost their jobs will be unemployed for a long time and this will weigh heavily on their finances.”