QE and low interest rates have handed extra wealth to richest households by propping up stock markets and supporting booming house prices, says report

This article is more than 4 years old

This article is more than 4 years old

Bank of England policies to help Britain’s economic recovery have made inequality worse and increased the wealth gap between young and old, according to a leading credit ratings agency.

A study by Standard & Poor’s has found thatthe low interest rates and quantitative easing used to rescue the economy after the 2008 crash have handed extra wealth to the richest households by propping up stock markets and supporting booming house prices.

The report said the wealthiest 10% of households held 56% of all net financial assets in 2008. By 2014 the proportion of the nation’s wealth in the hands of this group had risen to 65%.

Without government policies to restrict house price rises and promote greater equality, the report said the situation would only get worse.



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The finding in the report – “QE And Economic Inequality: The U.K. Experience – is likely to wound policymakers in Threadneedle Street who have repeatedly rebutted criticism that the Bank’s policies favoured the rich over the poor.

In 2014, the Sheffield Political Economy Research Institute (Speri), argued that QE increased the value of financial assets in the UK by £600bn.

Drawing on research by the New Economics Foundation, Speri claimed this amounted to an increase of between £128,000 and £322,000 in the wealth of Britain’s most affluent families over the previous five years. By contrast, average earnings fell by 7.9% between 2008 and 2013.

S&P said its analysis, based on figures from the Organisation for Economic Co-operation and Development and the UK’s Office for National Statistics, found that the central bank’s policies were not the only cause of widening inequality, but were a major factor.

“While unconventional monetary policy measures such as QE proved successful in restoring confidence and supporting the economic recovery, an unintended consequence has been to exacerbate wealth disparity between rich and poor,” said Tatiana Lysenko, senior economist at S&P.

The income gap in the UK remains among the greatest of OECD’s 34 member countries, being wider than that in France, Germany, and Nordic European countries. Only the US, Spain, Italy and Japan rank higher on the scale of inequality.



Britain fares better in the wealth tables compared with other European countries following a dramatic increase in home ownership, which spread wealth among middle- and low-income groups. For instance, the wealthiest 10% of UK households have about half of country’s total wealth, while in Germany the share is higher at 60%.

“In our view, this is linked to widespread home ownership in the UK, coupled with house price appreciation over the past decades that benefitted households on a wide income distribution spectrum. In fact, OECD countries with a higher share of household assets invested in housing tend to have lower wealth inequality,” S&P said.

Under the QE programme, the Bank of England has spent £375bn buying government bonds from the banking sector to encourage investment in riskier assets. Officials hoped investors would direct investments into new technologies and assets that improved productivity. But most of the money has been invested in shares and property.

Home ownership will likely drop in the coming decades, said the report, perpetuating high income and wealth inequality far into the future.

“Younger low- and middle-income households are the ones affected most. As buying a home becomes ever more expensive, they are increasingly forced to rent, spending a large share of their income on accommodation and unable to save to buy a home or otherwise accumulate wealth.

“It also contributes to an even higher income inequality when accounting for housing costs. In fact, while income inequality fell slightly immediately after the crisis and has remained broadly stable since then, inequality when accounting for housing costs is on the rise again,” the report said.



