UK unsecured credit surges whilst the Bank of England is “vigilant”

There is much to consider about the UK economy right now as we get updated on both economic sentiment and money supply data. Before we narrow down to the UK situation there was an intriguing view on the importance of money supply last night from Madame Le Pen. She seems to be suggesting that the French people as individual’s could switch back to the French France whilst businesses could use the Euro ( she seemed also to confuse the Euro with the Ecu). So how would they be paid wages and at what exchange rate? I guess there would be a boom in shops which do foreign exchange transactions as you could hardly have a fixed exchange rate! Oh well……

Meanwhile on Tuesday there was a meeting to celebrate 20 years of Bank of England independence. It has not got much publicity presumably on the grounds that so many think that there is little to actually celebrate. Even the heavily pro establishment Financial Times reports in such a fashion.

The Bank of England will be sorely tested as the guardian of Britain’s economic and financial stability in another crisis, the architects of the current system have warned.

Indeed there was an implied criticism of the current Governor Mark Carney.

Nick Macpherson, Gordon Brown’s private secretary in 1997 and later the most senior civil servant at the Treasury, said that appointing capable governors was a particular problem.

That sentence is like something I read in Yes Prime Minister 30 years ago as i marvel one more time at its insight and humour. When Sir Frank Gordon is asked about appointing a Governor who is both honest and intelligent he replies.

Although an innovation, it should certainly be tried….

There was also another reverse for Charlotte Hogg ( who apparently has now left rather than working her notice as was the claimed plan and thanks for pointing this out) who you may recall claimed there was no groupthink at the Bank of England.

“There was a terrible tendency towards groupthink,” said Kate Barker, who sat on the bank’s Monetary Policy Committee for nine years. “That the BoE emerged from the crisis with more power I think is very surprising.”

Also this from Rupert Harrison seems to contradict the official view that the FPC is “vigilant”.

Giving the Financial Policy Committee an explicit mandate to secure stability was extremely important, he told the audience: “If there is another financial crisis, we will know who to blame.”

The best reply suggest that the Bank of England may be the cause rather than the solution to the next financial crisis. Ooops!

Would that be the crisis precipitated by the BoE extreme interest rate policy and experimental QE program? ( Neil at Home)

Money Supply

This is something that the Bank of England really gave a shove to last August. We got another £60 billion of UK Gilt purchases, £10 billion of Corporate Bond purchases as well as £57.5 billion so far of the bank subsidy called the Term Funding Scheme. Oh and a cut in Bank Rate below the supposedly emergency level of 0.5%. So what is happening?

Broad money, M4 excluding intermediate other financial corporations, increased by £10.1 billion in March (Table A), with positive flows for all sectors.

This means that it grew by 0.5% on the month and 6.7% on a year before. If we take a broad sweep of the situation the Bank of England increased the annual growth rate from ~4% to ~7%. The old rule of thumb for this is to take GDP growth off this to get an idea of inflationary pressure so if we subtract 2% from that we are left with inflation heading above 4%. The inflation measure used for this was the Retail Price Index which is currently running at an annual rate of increase of 3.1%.

Unsecured credit

This continues on its own merry way as you can see.

The flow of consumer credit was in line with its recent average in March, at £1.6 billion

That is a very neutral way of describing quite a surge is it not? The monthly rate of growth was 0.8% and the annual and 3 monthly growth rates were 10.2%. So we see that the Bank of England has created quite a boom in unsecured credit about which it tells us it is being “vigilant”. In case you are wondering there is now some £197.4 billion of it.

In terms of a break down we see that credit card debt is rising at an annual rate of 8.6% with other loans and advances growing at 11%. For comparison purposes let us remind ourselves of real wage growth which is now around 0% and GDP or economic growth which is around 2%.

Looking at it another way I have written many times about the impact of easy UK monetary policy on mortgage lending. If we look back to the start of the Funding for Lending Scheme then the  annual growth rate of the “other loans and advances” part of unsecured credit was  3% as opposed to the current 11%.

Mortgage lending

It took a fair bit of effort but the Bank of England finally got net mortgage lending positive and now here is the state of play.

Lending secured on dwellings rose by £3.1 billion in March, similar to the recent average

It would be higher but the net figure is reduced by the scale of monthly repayments which are usually of the order of £17 billion.


There is much to consider here as we see that the UK monetary taps remain wide open. In the past the usual response to this is a combination of higher inflation and often a lower exchange-rate. Sounds familiar doesn’t it? The exact situation for the value of the UK Pound £ is complex because of course there are international influences as well as the vote last June. Also movements tend to happen before a policy move as they move on expectations of it so all measurements are awkward in terms of precision.

Also there is the issue of increased indebtedness at a time of real wage stagnation. On that road they are in the “spiders web” sung about by Coldplay in the song aptly named Trouble  as how can they increase interest-rates on any scale now? If we move to growth it would appear that the UK economy has regained some momentum in the second quarter if the Markit business survey is accurate.

UK service providers experienced a sustained rebound in business activity during April, supported by the fastest upturn in new work so far in 2017…….“The upturn in the services PMI rounds off a hattrick of good news after upside surprises to both the manufacturing and construction PMIs. The three surveys collectively point to GDP growing at a rate of 0.6% at the start of the second quarter.

The Bank of England will try to bask in the credit for this but the truth is that it maybe added a little to the powerful effect of the lower UK Pound £ that was already in place but at the cost of this.

The PMI surveys also show average prices charged for goods and services rising at the fastest rate since September 2008

Let us hope that the lower trajectory for some commodity prices and especially the price of crude oil continues to help in that respect.


The chocoholics amongst you may have noticed that the price of cocoa has fallen by about 40% over the past year. Has there been any sign of cheaper chocolate or perhaps an extra Toblerone triangle?





20 thoughts on “UK unsecured credit surges whilst the Bank of England is “vigilant”

  1. I thought our chocolate was deemed to be “vege-late ” by the EU ?

    thus tied to the price of vegetable oil?

    or was it the price of sugar , certainly not cocoa ……


    • Hi Forbin

      I thought they were cutting sugar out of chocolate bars or rather reducing it? As to not being tied to the price of cocoa I remember manufacturing using higher prices to raise there’s not so long ago.

      Actually commodity prices in general seem to be on a downtrend with crude oil down over 4% today.

    • That’s because cocoa is a very small percentage of a western “chocolate bar” . Try a Ghanaian “chocolate bar” with it’s 70% cocoa content and then you’ll find out what cocoa tastes – very bitter ugh!

  2. Hi Shaun

    Great article as always.

    wrt the credit bubble, I am now part of the problem. Rather than use savings for a big ticket purchase, I use a 0% credit card and pay it off over a few months, allowing my savings to bask in the glow of 0.000001% saving rate :-). With 0% cards ranging over 20 months now, am I an outlier or the norm?


  3. Time for me to ask a question that has always bothered me. If a consumer buys on credit then the cost to him is greater than the ticket price. Surely this means that over time the consumer can afford fewer goods than if they had been bought for cash. How is this good for the economy? I can see that it may bring the purchase forward, but at the expense of later purchases. Or is it that the champagne that the lender buys with the profit makes up for it?

    • its actually more difficult these days to get a discount for cash – well thats my experience .

      shops really huff and puff when you start flashing the £50 notes , not too bad with £20 though but you then plonk down a wedge and its huffity puffity again

      in general buying on 0% when you can is bring spending forwards but always on the hope you will forget to pay off the balance …… and actually a few people do that (!)

      and so long as the economy is “growing” and the plebs can get an extension on their mortgage all is fine – its also why its call a Ponzi scheme .

      eventually the music stops and the money needs to be paid back ……

      with the current trend that will be with your grandchildren , the Banks and HMG hope …


    • Yes, although the purchaser can only buy less goods over time as his disposable income is eroded by the debt and interest payments, assuming the purchaser receives no pay rise or if he does only one in line with the increase in his interest payments . The interest is recycled either to other consumers newly arrived in the credit market (e.g. newly employed youngsters or oldsters who have paid off their mortgage) or it is retained as profit with tax paid on it and is then recycled via dividend to shareholders or organic company growth and expansion. Either way new money is created and redistributed to others,thus leading to greater GDP if sufficient aggregate debt is taken on throughout the economy, but at the cost to the original borrower who finds their spending power diminishing over time as they take on more debt and consequently higher amounts of payments to satisfy the interest element or capital/loan repayment element.

      The scheme continues to work whilever there are new credit customers arriving to avail themselves of the credit, like a Ponzi scheme, but then we’ve had plenty of them – UK Social Security system, NHS, Endowment mortgages, final salary pension schemes and on and on and on……

  4. Hi Shaun I found this blog both interesting and in parts very amusing.
    When will this unsecured credit bubble burst.?
    It will at some time surely. Will it not.?
    Sometime ago you wrote about the rise of bitcoin.
    I remember one of your commentators insisted it was only temporary
    but as other things temporarily as the BOE knows can be anything but that.

    • Hi Midge

      It is hard to say as I fear that the Bank of England could square the circle so to speak with further reductions in interest-rates. As to Bitcoin I was looking at it earlier because it has seen quite a price surge and went over US $1600 earlier. I am told it is Japanese money pushing this move due to this. From Reuters.

      “with its most recent rise attributed to strong demand in Japan, where the digital currency has been deemed a legal means of payment.

      Cryptocompare, a data website that analyses bitcoin trading across dozens of exchanges globally, said around 50 percent of trading volume over the past 24 hours had been on the bitcoin/Japanese yen exchange rate.”

  5. A dark chocolate bar from Lidl that I enjoy has recently dropped in price from £1.00 to 89p. Sainsbury’s dark chocolate, no change except for the occasional temporary price drop, which means that I allow myself one of those yummy Lindt sea salt bars which are normally £2.00.

    • Hi Stevie

      There is a Lidl not far from me so when I next go there I will look out for that as I like dark chocolate. It is also nice to see that someone has cut prices in response to the lower cocoa price.

      • It comes in a cheap looking brown plastic container & is I am guessing between 60 – 70 % cocoa. Obviously it is a personal choice, but I find it a bit nutty & not too bitter & a couple of chunks go down well for me with an espresso, as taken together & in comparison, the choccy tastes sweeter & compliments it.

        89p….worth a try & good luck.

  6. Hi Shaun, a very timely entry today. The BoE in dependence is of course most welcome, they have the taps full wide bore open as you emphasise and absolutely nothing to do with our imminent general election… I am sure.

    Regarding MLP and bringing back the Franc. Well she must have been reading my earlier NAYME prescriptikns to save the EU. Of course that should re-introduce the national currency and promptly pay all state wages, debts and pensions in that denomination. Private businesses can pay wages in Franc if they want to lose staff and shop prices will be in Euros. It fixes that German partner whos been playing currency games inside the bloc, BMWs priced in Euros but also Im afraid EU contributions in Euros… coudl get expensive…

    Regarding the Credit boom, it seems I shall single handedly crash the system. Those bankers have been at it again, apparently all of those 0 percent balance transfers have been “booked” as highly profitable, bankers taking both bonuses and claiming profit on the assumption that recipients will suffer the 19% IR at conclusion of the 40month free period. When I pay pay £5k rate tart to Virgin Money in July I’m expecting their viability to falter visibly. You couldnt make it up, repaying debt crashing the financial system… from and FT article this week.

    Paul C.

    • Hi Paul C

      I like the idea of people repaying debt crashing the financial system :). It does not surprise me that bonuses are paid ahead of actual receipt of the profits in spite of the fact that I remember Atlantic Leasing being an example of that many years ago when of course we were assured it would not be allowed to happen again!

      Also i think that the “independent” Bank of England has managed to run a lot looser monetary policy than the politicians would have been able to get away with.

  7. The debt bomb gets closer to detonanation and economic Armageddon by the day.
    Never mind we have ‘strong and stable’ Government to thank for adding $700B to the national debt with private debt very close behind, the only question is how long before this comes to a disastrous conclusion.

  8. Hallo Shaun, late again but couldn’t contain myself.

    I shouldn’t pay too much attention to the Markit survey. You can expect falling growth and increasing inflation from May/June onwards as I predicted last year – stagflation, brought on by the BOE’s failure to raise rates at end 2015 as I said they should in December 2015 to avoid inflation in late 2017 and into 2018. The Brexit vote with the consequent collapse in the £ followed by the ill advised further rate cut by the BOE last August resulting in a further fx fall has brought inflation forward about 6 – 9 months, whilst collapsing real M1 and M4 supply (itself exacerbated by the inflation rise) since about last November has ensured falling growth from May/June onwards regardless of lending, – Stagflation, Marvellous!!

  9. Great blog as always, Shaun.
    Regarding the celebration of the 20th anniversary of the independence of the Bank of England, it probably was worth celebrating. Just the same, the Bank of England really doesn’t look to be as independent as it might be. The first country with an inflation targeting central bank set the model for others, at least among the British parliamentary democracies, with its Policy Targets Agreement signed by the Treasurer and the Governor of the Reserve Bank of New Zealand, specifying the inflation target range and other important parameters, renewable every so many years. Gordon Brown made a mistake twenty years ago when he retained for himself the power to define the remit of the Bank of England instead of agreeing to negotiate it with the Governor of the Bank of England. Surely it isn’t too late to move to such a model. Would a negotiation between Brown and Mervyn King have led to the replacement of RPIX with CPI as the target inflation indicator? We know for sure that King frequently groused about the change.

    • No wonder they’re celebrating 20 years of the Banks being in charge as they’ve never been richer, and if it looks as if they’ll take a hit on their wealth the BoE steals wealth of the plebs via ZIRP, QE, TFS, FFL to make sure this doesnt happen.

      I’ll celebrate when these people are hanging from lampposts.

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