Peaked interest

Think tank: Resolution Foundation

Author(s): Molly Broome; Ian Mulheirn; Simon Pittaway

July 17, 2023

This report from UK think tank Resolution Foundation looks at what higher interest rates mean for the size and distribution of Britain’s household wealth.

Over the past four decades, the total value of wealth owned by UK households has been on a seemingly-relentless upward path: rising from around three-times GDP in the mid 1980s to almost eight-times. The key driver of this rise in wealth has been falling interest rates and the associated increase in asset prices. But the cost of living crisis has thrown this upward march into reverse as interest have risen sharply in response to the highest inflation in 40 years. In this report we explore the impact of both changes in households’ active saving behaviour, as well as ‘passive’ moves driven by the sudden end to ultra-low interest rates, on the composition and distribution of household wealth. In addition, we discuss how policy makers should think about how to respond to seismic changes in the level – and volatility – of interest rates.