The richest households have seen the value of their assets increase substantially as a result of the Bank of England’s extraordinary interventions in gilts markets following the global financial crash.

Since 2008 the Bank of England has spent around £375 billion on asset purchases (almost entirely gilts, or government bonds). This so-called ‘quantitative easing’ policy, designed to bolster liquidity in financial markets, has pushed up the price not only of gilts but also of corporate bonds and equities. A new Bank of England paper tries to estimate how this has affected the distribution of wealth in a variety of ways.

Key points

• By pushing up a range of asset prices, quantitative easing has boosted the value of households’ financial wealth held outside pension funds. But these holdings are heavily skewed, with the top 5 per cent of households holding 40 per cent of all financial assets.
• The total increase in household wealth stemming from quantitative easing up to May 2012 is estimated at over £600 billion, equivalent to around £10,000 per person if assets were evenly distributed across the population. But the median household holds only around £1,500 of gross assets, whereas the top 5 per cent of households hold an average of £175,000.
• Although the paper declines otherwise to put precise figures on the gains from quantitative easing, a Guardian estimate says the average boost to assets held by the richest 10 per cent of households would have been in the range £128,000 to £322,000 per household, depending on the exact methodology used.

The paper emphasises the Bank’s view that, without quantitative easing, most people would have been worse off: economic growth would have been lower, unemployment would have been higher, and more companies would have gone out of business.

Source: The Distributional Effects of Asset Purchases, Bank of England
Links: Paper | Bank of England press release | BBC report | Guardian report | Telegraph report