UK unsecured lending continues to surge ahead

Today we get more information on just how loose Bank of England monetary policy is. But as it happens markets signalled the state of play yesterday. From the Financial Times.

The price of 10-year UK government debt rallied to its highest since October, as the general election build-up comes more clearly into investors’ view. The yield on benchmark 10-year gilts, which moves inversely to the price, dipped below 1 per cent on Tuesday to an intra-day low of 0.978 per cent, as investors sought the safety of government bonds after the long bank holiday weekend.

So if we want a strong Gilt market all we have to do is have more bank holidays, what a curious view? There are two much more relevant issues here of which the first is the easing on UK monetary conditions as the Gilt market has rallied since late January with the ten-year yield falling from 1.51% to around 1% now. The second is that it is in my experience rather extraordinary for the latest part of the rally to be taking place in an election campaign particularly one which veers between insipid and shambolic. The polls are in an even worse place as they suggest that the Conservatives may either lose their majority ( YouGov ) or win by 100 seats! Mind you after the 2015 debacle I can see why so many now simply ignore them.


A consequence of easy monetary conditions is rising prices and we have seen another sign of what we have been expecting today already.

Grocery inflation hit 2.9 per cent in the 12 weeks to May 21, according to Kantar Worldpanel’s latest survey of the grocery sector, ahead of the official year-on-year inflation rate of 2.7 per cent. ( FT )

I doubt many consumers will be grateful for this nor will they agree with the central banking fraternity that by being “non-core” it can mostly be ignored. But they are doing their best to avoid it in an example of rationality.

in a sign that inflation is starting to affect consumers’ spending habits, cheaper products and discount retailers saw the biggest rises……Aldi and Lidl recorded their fastest growth rates since 2015, hitting a combined market share of 12 per cent. Across the sector, sales of supermarkets’ cheaper own-label products were 6 per cent higher than the same period last year,

Unsecured Credit

On the 29th of September last year I warned that the bank of England was playing with fire with its Bank Rate cut and other monetary policy easing. In particular I was worried about the growth of unsecured credit.

Consumer credit increased by £1.6 billion in August, broadly in line with the average over the previous six months. The three-month annualised and twelve-month growth rates were 10.4% and 10.3% respectively.

So how is that going now?

The flow of consumer credit was similar to its recent average in April, at £1.5 billion; the annual growth rate was broadly unchanged.

As you can see some months later the beat goes on. The only changed is that the Bank of England seems to have changed its policy about declaring the actual growth rate so shall we see if it has something to hide? If we check we see that the three-month annualised growth rate is 9.8% and the twelve-month growth rate is the same as last August at 10.3%.

So as the late Glenn Frey would say.

The heat is on, on the street
Inside your head, on every beat
And the beat’s so loud, deep inside
The pressure’s high, just to stay alive
‘Cause the heat is on

Just as a reminder the numbers were “improved” a few years ago on this basis.

The stock of student loans has doubled over the five years to 5 April 2012 to £47 billion, and now represents more than 20% of the stock of overall consumer credit. With student loans unlikely to be affected by the same factors that influence the other components of consumer credit, the Bank is proposing a new measure of consumer credit that excludes student loans……….This new measure of
consumer credit will be introduced in the August 2012 Bankstats release.

That is what we have now and as a comparison times were very different back then.

Consumer credit excluding student loans is estimated to have contracted by 0.4% in the year to June 2012.

Whereas student loans were expected to surge.

Government projections suggest that the outstanding balance of student loans will be more than £80 billion by 2017/18.

They were pretty much right about that but what does it mean for consumer credit? Well the total is much lower than it would be with student loans in it. For example I estimate that the current level of consumer credit of £198.4 billion would have nearly £100 billion added to it. As to the monthly net growth well the current £1.5 billion or so would be somewhere north of £2.5 billion and maybe at £3 billion. The reason why I estimating is that the numbers are over a year behind where we are.

Secured Credit

This will not be regarded as such a success by the Bank of England.

Net lending secured on dwellings in April was £2.7 billion, the lowest since April 2016 …. Approvals for house purchase and remortgaging loans fell further in April, to 64,645 and 40,575 respectively

Of course the Bank of England has made enormous efforts in this beginning four summers ago with the Funding for Lending Scheme. Those efforts pushed net mortgage lending back into positive territory and also contributed to the rise in UK house prices that has been seen over the same time period. Last August yet another bank subsidy scheme was launched and the Term Funding Scheme now amounts to £63 billion. However it seems to have given more of a push to unsecured lending than secured.

Of course Governor Carney also claims that car loans are secured lending ( no laughing please) and here is the latest data on it from the Finance and Leasing Association.

New figures released today by the Finance & Leasing Association (FLA) show that new business in the point of sale (POS) consumer new car finance market grew 13% by value and 5% by volume in March, compared with the same month in 2016.

That meant that £3.62 billion was borrowed in March using what is described as dealership finance.

Business lending

The various bank subsidy schemes have been badged as being a boost to business lending especially for smaller ones, but have not lived up to this.

Loans to small and medium-sized enterprises decreased by £0.3 billion ( in April)


The Bank of England claims that it is “vigilant” about unsecured lending in the UK but we know that the use of the word means that it is not. Or as it moves from initial denials to acceptance we see yet again a Yes Prime Minister style game in play.

James Hacker: All we get from the civil service is delaying tactics.

Sir Humphrey Appleby: Well, I wouldn’t call civil service delays “tactics”, Minister. That would be to mistake lethargy for strategy.

But it opened the monetary taps last August with its “Sledgehammer” expectations of which pushed the UK Pound lower and now we see unsecured credit continuing to surge and broad money growing at just over 7%. The old rule of thumb would give us an inflation rate of 5% if economic growth continues to be around 2%. In fact it is if we add in the trade deficit exactly the sort of thing that has seen boom turn to bust in the past.







12 thoughts on “UK unsecured lending continues to surge ahead

  1. twist and turn , duck and dive but eventually Reality rears its ugly head ……

    Red Queen race , more and more must be pumped ( or is that dumped? ) to save the Banks, they , after all , are the economy . And the resting place for so many from Whitehall & Westminster .

    This obsession with the Banking sector can and will bring the UK economy down , the EU is no better either .

    poor growth , increasing debt of all kinds , and tellingly , no major innovations or security of industry ( things we can export ) .

    What to do ? ( apart from sack Carney and put Shaun in his place)


    • Hi Forbin and thank you for the recommendation.

      As to the banks I guess these days they are happy to be involved in risky unsecured lending. After all should it go wrong the establishment will bail the banks out and declare it wasn’t anybody’s fault.

  2. Shaun, thanks for highlighting the run-away train which is credit from printed money. We could rename the young persons expenditure as “snowflake debt” , the propensity to take on repayments against future earnings based on the need to consume now, whether its iPhones, education or vehicle finance.

    I noted in the FT this week that the mechanism for failure is now established in the US around PCP car finance. The second hand car market valuations dive, as 3 year cohorts of aged vehicles alongside repos hit the market. This feedback mechanism is aggravated as “owners” see the value of their “asset” fall below the cost of servicing the payments over the future period, leading to further payment defaults.

    MS Banks are now backing away from vehcile finance in the US. Not sure about Europe though, I think the Auto Company finance arms have direct access to Mark Carmey’s printed money so I guess PCP’rs get a delayed chop….

    Lets have a look after the election and summer and see what comes out of the smoke barrage from the overheating money machine.


      • “…..consequences of looser underwriting, which has seen them stretch out terms for borrowers while pushing up loan-to-value ratios and debt-to-income ratios….”

        oh deary me , have they learned nothing ?

        this time can we just let the Banks go?

        ( thinks , if they take on all that student debt , then go bust . free ride for government maybe ? oh I forgot , that’s were TPTB go to retire , the Banks…)


    • In terms of the US banks backing away from this business, it actually came about as a result of tighter lending criteria being imposed by the Fed last year to a raft of different types of risky business.

      In fact the banks are now coming back into different parts of the credit markets as their understanding of the new regulation has improved, so I wouldn’t write them off just yet, although there is, as you say, at the micro level little evidence of the banks returning to vehicle finance in any significant numbers.

  3. February 7, 2005

    Chronicle of a Debt Foretold

    “Put simply, for every five first-time buyers struggling in the traffic from Kinnegad tomorrow morning, there’s a rich 65-year-old teeing off in the Algarve.

    This division is creating a financial second class of people who are up to their eyes in debt, running from work to creche and juggling maxed-out credit cards to stay afloat.”

    ( from David McWilliams)

    So , Shaun , somethings havn’t changed for what , 12 years??

    We know what happened next too…..


    • “So , Shaun , somethings havn’t changed for what , 12 years?? ”

      In fact they haven’t changed for at least 40 years. You talk as if this is something new. It was blindingly obvious to me back in ’77 if to no one else.

  4. Hi Shaun,
    Why is it I have to come to blogs like this for this information? It seems to be censorship by simply not reporting these matters and certainly never discussed on the Marr show or Daily Politics. The narrative is always government debt about to swamp us, presenters are simply not knowledgable to ask the right questions.
    Look at the election right now the issue that will cause the next crisis (when not if) I haven’t heard the matter raised once. Thanks for the coverage you give, I share it as widely as I can.

    • Hi bill40 and thanks

      As to the media coverage of economics it has 2 main problems. Firstly so much comes from a political angle leading to cherry picking and secondly there is so much copy and pasting of official releases.

      If we look at the BBC it tried by having an economics editor who blogged and had an expanded role. Sadly those they have chosen have mostly preferred politics to economics and this has meant that real economic issues get ignored.

      • big organisations enforce their own agenda and require loyalty / subservience from their staff. Media and journalism is poorer from this control freakery. Media is meant to be a watchdog of accountability and democracy, not a party political propaganda machine.

        Thank you Shaun for independent and objective information !

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