UK unsecured credit continues to flow unlike business lending to SMEs

Today gives us our first main insights into the UK economic trajectory so let us start off with a familiar issue. From the Nationwide Building Society.

UK annual house price growth ended 2017 at
2.6%, compared with 4.5% in 2016

So a slowing as we expected here although there were fewer cases of actual falls than I thought that there might be.

London saw a particularly marked slowdown, with prices
falling in annual terms for the first time in eight years, albeit by a modest 0.5%. London ended the year the weakest performing region for the first time since 2004.

So far house price falls are primarily a London thing as we wait to see if it will prove to be a leading indicator one more time or if you prefer the canary in the coal mine. If we return to the national picture we see that overall for the first time in a while house price growth and wage growth are similar albeit that the former still slightly edges the latter. A period of this ( or even better wage growth exceeding house price growth) would be good but somehow as ever the UK establishment seems to have other plans.

Certainly plenty of help seems to be needed as this from Henry Pryor infers.

Still struggling with this;- 3,858 first time buyers earning over £100k appear to have had Help2Buy..

Apparently according to @Andrew_J_Carter life on over £100k requires help although he has figured out what Abba would call the name of the game.

My household earns over £100k a year. We can’t afford a house (no money from parents for deposit), why shouldn’t we be entitled to Help to Buy, given the sole intent of the Government is to drive house prices up?

This brings us to regional differences as we get a new look at an issue we have discussed many times.

The picture that emerges is that this ‘typical buyer’ moves
up the income spectrum as you move from the north to the
south of the country. In Scotland and the North of England,
this buyer would lie in the 30th income percentile, while in
the South East they would be at the 80th percentile and
above the 90th percentile in London (the closest percentile
with available data).

So a cautionary note reminding us that the overall picture needs a fair bit of regional refinement especially in Northern Ireland where prices are still 40% below the previous peak. Here is some food for thought for you from the ratio of house prices to earnings for first time buyers. Back in the latter part of 2007 it rose to 8.1 in Northern Ireland and we know what happened next which should make property owners in London mull a ratio which is at 9.8!

As ever there is a general cautionary note that these figures cover only Nationwide customers and whilst it does a fair bit of business it is not the whole market and will for example miss purchases for cash.

Unsecured credit

For newer readers this has been on something of a tear in the UK over the past couple of years and in my opinion eyes cannot avoid turning to the “Sledgehammer QE” and “muscular monetary easing” of the Bank of England in August 2016 as a driver of this phase. If you look back at UK economic history monetary policy easing invariably slips into this area as frankly it is easier for the banks to do than even mortgage lending but especially business lending a subject I will return to in a moment. So where do we stand now? From the Bank of England this morning.

The annual growth rate of consumer credit slowed to 9.1% in November (Table J), the lowest rate since
December 2015. This fall partly reflects a particularly strong flow in November 2016 falling out of the annual
growth rate.

In a way it speaks for itself that 9.1% is the lowest annual rate of growth for a while. Even so it is some 7% higher than the economic growth we have been seeing and also wages growth. We have seen increases of £1.4 billion a month for the last three months which has dropped the annual rate of growth from 10% to 9.1%. So a little better but perhaps only from white-hot to red-hot so far. Also yesterday an annual rate of 6.7% growth seemed high in the Euro area and we are considerably above that.

The brochures for QE and interest-rate cuts never stated they aimed at a surge in unsecured credit did they? In fact we were assured that we were deleveraging until it was impossible to make such claims.

Business Lending

The official reason for at least some of the monetary easing in the UK was to boost lending to smaller and medium-sized businesses or SMEs. How is that going? Well net lending was zero in November which is not untypical. Also there was a clue to a possible answer to a question several of you have asked which is has lending here gone to corporate buy-to-lets? The category including rented or leased real estate rose by a net £100 million.

So as a perspective we have an area where monetary easing was definitely not supposed to go rising by £1.4 billion a month whereas the area where it was supposed to has risen by £0. It is going to require quite a few counterfactuals to cover that chasm I think!

Moving to total’s we see that unsecured credit has risen to £205.8 billion whereas lending to SMEs has stayed at £165.6 billion.

Meanwhile the Term Funding Scheme which provides cheap funding for the banks has grown to £102.8 billion which is a fair rate of growth considering it only started in August 2016. Those who follow my social media output will have noted challenges suggesting this is not a subsidy for the banks. Odd isn’t it that they have taken £102.8 billion of something for apparently no gain to them?


I am reminded of a past Bank of England Governor who is now called Baron King of Lothbury. He used to regularly give speeches about a “rebalancing” of the UK economy except it was not a rebalancing towards unsecured credit which his successor has managed to achieve. That road has been one which has involved higher house prices (check), balance of trade problems ( check) and one which led to overheating of the economy and interest-rate rises to correct it. In a world where consumer inflation is low and we have only had one interest-rate rise in the last decade the old concept of overheating no longer applies but parts of it can.

If we move to the real economy we see that in spite of the “hokey cokey” style policy of the Bank of England on interest-rates since the EU Leave vote the economy has in fact continued pretty consistently. This morning’s Markit PMI business survey was of a still the same variety.

the survey data are consistent with the economy having grown 0.4-0.5% in the fourth quarter of 2017.

There is an irony in that just maybe some of the rebalancing that Baron King could only dream of during his term of tenure as Governor of the Bank of England may be taking place.

Alongside the solid expansion seen in manufacturing.

If so we are doing better than the raft of annual forecasts released this week would suggest. But there is a potential black swan tucked away in the pack concerning the growth of unsecured credit and in particular its interrelation with the automotive industry. Ironically UK sales only have a relatively minor impact on UK production which is mostly exported but over the seasonal break there were a lot of adverts on the radio for car price cuts or excuse me scrappage schemes which may indicate trouble ahead.

No doubt the Bank of England is “vigilant” but the definition of that word is not what it was……..



21 thoughts on “UK unsecured credit continues to flow unlike business lending to SMEs

  1. An article a couple of days ago ‘Brexit hit shoppers reign in spending’. More sloppy journalism ( or making stuff up to suit their agenda) as spending is up and unsecured credit growth still growing. Eventually consumers who rely on credit will have to reduce their spend and no doubt this will be reported as the end of the world and no one could have seen it coming. Unsecured credit growth is a serious problem that should have been addressed some time ago.

    Likewise reports relating to the Eurozone economy v the UK are gleefully showing that the UK is slowing just as the Eurozone is picking up. It is of course blamed on Brexit despite the fact that the UK has had a long period of growth and a slow down is to be expected. The Eurozone went no where for years and so it is about time it started to do well. Once again I am not sure if this is sloppy reporting or a hidden agenda on the part of the media.

    On a different subject: I read Yanis Varoufakis’s book ‘Adults in the room’ over Xmas and I highly recommend it to anyone who wants to know the inside workings of the EU. What is interesting is that exactly the same propaganda war is being carried out against our Brexit negotiators as was used against Greece. Claims of being unprepared, trying to split the negotiating team and leaking the outcome of meetings before the meetings have happened are but a few. I hope that our government has read the book!

    • It is a great book, Pavlaki – I recommended it highly in this site last summer as a wonderful blueprint for how the EU “negotiates”. To your list of disgraceful tactics, I would add (from the book):
      1. Personal attacks on the negotiators (eg David Davis);
      2. Attempts to replace difficult negotiators with other people;
      3. Utter intransigence;
      4. Setting agendas of things that have to be agreed before moving on to stage two;
      5. Talking behind closed doors to opposition leaders (eg recent visits by Corbyn);
      6. Sending civil servants to negotiate against politicians;
      7. EU negotiators hiding behind “ we will never get this through 27 other countries”;
      8. The EU instantly agreeing to things when Frau Merkel dictates (despite 7 above);
      9. Complete brutality (eg actually shutting Greek banks down).
      The one thing that is missing from EU negotiations is even a faint concept of a win-win deal. If it doesn’t enhance the ever close union project, it is systematically destroyed even if to the benefit of all.
      Rant over – I’m going to lie down.
      If you liked the book, have a read of Quentin Letts “Patronising bastards” as it gives a similarly unvarnished view of how the establishment screws everyone else.

      • Regards ♯3 are yo sure that isn’t the UK?

        #4 makes perfect sense – how do you expect to move on if you can’t agree fundamentals as failure to agree fundamentals will continually trip you up later in the negotiations when you request something that requires prior agreement on a related matter.that you decided to “park” as agreement couldn’t be reached.

        Again #6 makes perfect sense – the UK is leaving, the politicians need to think about the future development of the remaining, 27 countries, not the departing one.

        Again!! regards #9 – isn’t that the way the UK has been conducting itself?……

    • Sorry gents agree EU is no saint except when compared to theUS,however Brexit is not the answer to the only thing that matters the debt bubble and the unrepayable levels it has been allowed to reach.
      This has not been caused by the EU but the economically illiterate/corrupt Governments that we have been electing for the last 4 decades our manufacturing base was destroyed and we have been encouraged to borrow to compensate.
      The politicians,the banks and the media have brought us to the edge of economic oblivion not the EU as an entity however Governments of EU member states have been equally guilty of promoting the debt bubble.
      The ECB led by Super Mario thinks the answer is to print to infinity…it is not ….this will end disastrously either in economic meltdown or world war fermented as always by media propaganda.

      • I couldn’t agree more and sorry to have diverted the comments away from what you correctly identify as the real issue, the astounding debt levels as noted by Shaun. These levels seem to be disastrous whether or not you’re in the EU, USA or Japan.
        As I drive to work past endless new housing estates under construction, I sometimes wonder what the state of the economy would be if we put all that energy into something more productive.

    • Those reporting an improving EZ will be silent in H2 this year – the EZ will grow but more slowly than last year.

      The UK is unprepared. although it knows exactly what it wants – all the benefits of EU membership but without paying for them or following any EU rules and it still can’t work out that it can’t have EU benefits without paying for them. I learned this kind of stuff when I was 8 years old!!! If the UK had a realistic idea of what it wanted it would have already left instead of behaving like a spoilt selfish brat.

      In fact UK consumer spending is down and has been falling since around June 2016 –

      UK growth has been helped by improving exports, mainly due to stronger foreign markets as UK producers increased their prices to adjust for the sterling collapse in 2016 thereby negating any benefit via increased volumes from the favourable fx rate for exporters although they did of course improve their individual bottom lines
      Now, just remind me. What happened in June 2016?….

  2. Fascinating post Pavlaki,I’ll have to get that book.

    ‘Eventually consumers who rely on credit will have to reduce their spend and no doubt this will be reported as the end of the world and no one could have seen it coming.’

    Too true……

    • Hi Dutch

      Don’t forget that the Bank of England has been “vigilant”. This means that it has denied there is a problem for as long as possible and then claims it is on the case. If they follow the Sir Humphrey Appleby playbook then the next move will be to tell us it would have been nice do to something but that it is now too late and that no-one could have predicted trouble ahead ( even though we have ).

  3. ‘ “I have made it my personal mission to restore the dream of home ownership for people up and down the UK” – PM

    — UK Prime Minister (@Number10gov) January 3, 2018’

    In that case, she should let the prices drop and stop the BoE’s constant fiddling with risk pricing in money markets.

  4. listening to Tony Blair on radio 4 I would have thought the retainers would have told him to shut up

    I’m sure ever time he pontificates on how great the EU is and we can always change our minds…. well his creepiness and memories of WMD will just put more people into the leave camp!

    of course if being in the United States of Europe would mean more Brussels money to build more smaller shoe boxes of houses , then we’d expect the public to vote for free money…….


    • I’m sure that he is a put up job by leavers. I don’t think I know a single person (irrespective of political leanings) who would actually trust this guy (as he called himself)…

    • Forbin,
      I look forward with glee to every utterance of Tony B.Liar on the subject of Remaining. This man is so delusional and arrogant(as are the Globalists that are behind him and backing him)that they cannot see that he is so utterley despised and discredited, that he is the best advertisement and recruiting agent for BREXIT without even realising it himself.

      Long may he condescendingly preach to the plebs he despises so much, it only makes us more determined to defy him.

  5. One thing that has amazed me since this financial crisis began nearly ten years ago, is how long central banks can keep the plates spinning, just when you think markets have realised the game is up and all hell is about to break loose, a central banker issues a few well chosen words(or starts buying the market) that actually signify nothing and markets are becalmed and it is business as usual.

    We are now looking at going into the tenth year of this bull market and far from running out of steam or crashing as most seasoned analysts have been predicting month after month, year after year, it looks more and more like it is entering the melt up phase of another bubble(on top of the current bubble)= bubble squared?

    This is how insane things have got, and yet in this blog, Sean describes consumer credit being out of control at the same time as declining real incomes, it maybe a stretch to infer it, but to me I think many households are now using their credit cards to buy food and other essentials as they cannot balance the account every month, more and more households are slipping further into this credit trap from which there is no escape,like the above scenario with stock and bond markets, how long it can go on is anyones guess.

    • Hi Kevin

      A piece of research from the early days of the credit crunch comes to mind as it was one of the first to posit a large asset price boom. I cannot recall the author to credit him/her at Societe Generale but one of the roads forward was the Nikkei 225 rallying to 64,000 in a sort of asset price melt up. On a day where the Dow Jones has passed 25,000 and the Donald has mentioned hopes of it going to 30,000 I am reminded that the scenario is in play if still far far away. The question was what would 64k on the Nikkei 225 buy you? To which we would add who would really benefit? As of course it is the asset rich who continue to be the winners

    • Just goes to show how wrong the seasoned analysts are. Their problem is they can’t think outside the box. They always move forward on the economics theme of ceteris paribus assuming no other changes will be made. When QE started big time I was one of those forecasting a collapse but realised after a year that we are in a new order – US companies are very profitable and Uk ones are profitable. I f you start historical comparisons pointing to the “good old days” of P/E ratios of circa 10 you miss the point that in those “good old days” we also had interest rates of circa 8% pa and inflation of circa 8% pa. the returns HAD to be greater to compensate for the big inflation and competing interest rates we had then. Now we are faced with low inflation and rates so returns may be lower and we can still survive.

      Of course the credit issue is a problem but I would point this out – every year new credit virgins arrive in the credit industry in the form of people finding their first job. The question is how long can they keep this going?….

  6. I was wondering Shaun if the lack of lending to SMEs had a noticeable effect on our growth rate and whether the Eurozone, which we are told is picking up, had been any better at lending to SMEs?

    • Hi Peter

      General business lending is a little better according to the ECB December economic bulletin.

      “. The annual growth rate of MFI loans to the
      private sector (adjusted for loan sales, securitisation and notional cash pooling) was broadly stable in the third quarter of 2017 and increased in October (see Chart 20). Across sectors, the annual growth of loans to non-financial corporations increased to 2.9% in October, from 2.3% in the third quarter”

      But narrowing to the smaller sector we only get a hint of the state of play.

      “This indicates that small and medium-sized enterprises have
      generally benefited to a greater extent from the decline in bank lending rates than
      large companies”

  7. I wonder if the banking sector is being entirely “honest” about it’s true unsecured bad debts?
    Lloyds refused a £2500 settlement offer on a £9000 debt from a pensioner, offering £5000.
    Continuing to make the £8 pcm payments as agreed, since he is retired and on fixed pension:

    The £2500, if collected at £8 pcm, would be paid back on his 92nd birthday, (26 years time)

    The £5000 offered, if collected at £8 pcm, would be paid back on his 114th birthday, in 52 years.

    The full £9400 owed will be fully paid off on his 157th birthday, in 97 years from now.

    I am sure the Auditors and Actuaries would be interested in Lloyds refusal of £2500, eh?

    I get a strong feeling that Lloyds is not being entirely honest with the City about it’s actual bad debt liabilities. 😉 (Fingers in ears and La La La sound?)

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