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,
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.
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.
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.