The credit crisis has cost UK households £1.9 trillion since July 2007, says a new report from PricewaterhouseCoopers (PwC).

According to PwC: “With average UK house prices down by around 20 per cent from their peak, estimated housing wealth losses are around £800 billion. Meanwhile sharp falls in stock markets (totalling around 40 per cent since mid-2007) have pushed the estimated UK household wealth loss from equities up to around £1.1 trillion.”

PwC estimates that the £1.9 trillion fall in UK wealth could ultimately reduce annual UK expenditure by around £45bn (around 3 per cent of GDP or around 5 per cent of household spending).

John Hawksworth, head of macroeconomics, PricewaterhouseCoopers LLP said: “Translating these figures to a more individual perspective, the estimated loss of wealth of £1.9 trillion would equate to around £40,000 on average per adult (aged 18+) in the UK, although clearly these losses will vary considerably across the population.

“The knock-on effect of this level of wealth destruction will result in significantly more belt tightening and reduced spending by households over the next year and this situation could be exacerbated by expected further falls in house prices over this period.”

Not everyone agrees with the principles that underline PwC’s assumptions about crashing asset levels leading to a fall in consumption. Morgan Stanley recently suggested that the fall in asset prices may actually encourage people to work harder, thus counteracting the cost entailed by the loss of asset values.

The reality, though, is that it shouldn’t be like this at all.

Actually, what should really determine how wealthy we are is the quantity and quality of goods and services we produce. A crash in house prices or equities does not really mean we are worse off – not nationally. There is no production in high house prices.

The reality is simply that the crash in asset values has removed an illusion. Consumer spending was based on foundations made of smoke and mirrors. That is the real point.