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The debate on causes and consequences of social capital has recently been complemented by an investigation into factors that erode it. Various scholars concluded that diversity, and racial heterogeneity in particular, is damaging for the sense of community, interpersonal trust and formal and informal interactions. However, most of this research does not adequately account for the negative effect of a community's low socio-economic status on neighbourhood interactions and attitudes. This article is to date the first empirical examination of the impact of racial context on various dimensions of social capital in British neighbourhoods. Findings show that low neighbourhood status is the key element undermining all dimensions of social capital, while the eroding effect of racial diversity is limited.