Dear Bank of England how is 8.8% consumer credit growth “weak” please?

This morning has brought better news for the UK economy from the manufacturing sector as this from the SMMT ( Society of Motor Manufacturers and Traders) highlights.

UK car manufacturing rises 5.2% in April, with 127,952 vehicles rolling off British production lines.

However this is in comparison to last April which was a particularly poor month so we need to look for context of which we get a little here.

Growth, however, was also buoyed by production ramp up at several plants to deliver a number of key new and updated models.

Let us hope so as whilst the 3.9% fall in production in the year so far is better than the -6.3% in March the numbers remain weaker. We export 80% of the cars we make and production there is 2.2% lower in 2018 so far but whilst the home market is a mere 20% production for it has fallen by 10.3%.

This links us in to today’s subject of monetary trends in the UK because domestic car demand is so dependent on finance these days with around £44 billion lent last year and involved in 88% of purchases according to the Finance and Leasing Association. So Bank of England Governor Mark Carney will have noted today’s data as we mull whether he is more interested in the implications for consumer credit and the finance industry or car manufacturing?

House Prices

This from the Nationwide Building Society will have gone straight to the top of Mark Carney’s Bloomberg screen.

“UK annual house price growth slowed modestly in May to
2.4%, from 2.6% in April. House prices fell by 0.2% over the
month, after taking account of seasonal factors.”

So pretty much what we have come to expect as most private-sector measures have house price growth around 2%. The official numbers are higher which sadly means they being a more recent construction are more likely to be in error. However the next bit might have Mark Carney spluttering his coffee onto his screen.

Overall, we continue to expect
house prices to rise by around 1% over the course of 2018.

Oh and this provides some perspective on us not building houses.

“Data from the Ministry of Housing, Communities and Local Government shows that, over the last 20 years, the total housing stock in England has increased from 20.6 million to 24 million dwellings, a rise of 16%

Families have got smaller but we are left wondering about how much the population has grown?

Just for context the index fell from 424.1 in April to 423.4 in May. If you want a real bit of number crunching then the 1952 index set at 100 is now at 11201.6 and whilst methodology changes have been made the numbers speak for themselves.

Money Supply

There was another weakening in the broad money data in April.

Broad money increased by £0.5 billion in April . Within this, the flow of households’ M4 was -£3.1 billion , the lowest monthly flow for at least 20 years. The flow of private non-financial corporations’ (PNFCs’) M4 was £5.5 billion.


The net flow of sterling credit was -£5.3 billion in April (Table A). Within this, the flow for households increased to £4.3 billion 

So the growth impulse is weak and the number for households is eye-catching so let us stick with that for a moment. One area which signalled something is total mortgage lending which fell by £1.6 billion to £1373.3 billion in spite of net lending being £3.9 billion.

Moving wider let us look at the trend which shows that broad money lending growth ( M4L) has so far in 2018 grown at an annual rate of 4.5%,3.8%,3.7% and now 3.2%. So we remain in a situation where it is fading as we are reminded of the rule of thumb that it represents economic growth plus inflation. It is always hard to figure out when it will apply and it is hopeful that inflation has been fading but nonetheless it implies continuing weak economic growth.

Consumer Credit

There was a return to what might be called normal service this month as Governor Carney reaches for a celebratory Martini.

Net lending for consumer credit was £1.8 billion in April, up from £0.4 billion in March . Within this, net lending on credit cards was £0.6 billion and net lending for other loans and advances was £1.3 billion.

If we look at the breakdown we see that credit card growth and the rest of consumer credit are now growing at similar percentage rates. This gives us a clue that car finance has indeed dipped in response to the issues we looked at above as the “other” category had been growing consistently more quickly in the past three years and peaked around 12% in the autumn of 2016 in response to the Bank Rate cut and Sledgehammer QE of August 2016. But we do not get any sort of break down.

This brings us to the annual rate of growth.

The 12-month growth rate of consumer credit was 8.8% in April, compared to 8.6% in March

Now this is over treble wage growth and a larger multiple of economic growth as it seems to be a bit over 1% and of course is far higher than real wages which are in a broad sweep flat. This reminds me of something from the Bank of England that I challenged at the time.

This is something that I challenged at the time as frankly there have been few stronger series of anything n the UK than consumer credit growth. A policymaker should be able to distinguish between one weaker month in numbers that can be erratic from what is as we noted above at least a three-year trend of up, up and away.

This brings me to a deeper issue which is the take over of so many bodies which are claimed to be independent by HM Treasury. Sir David Ramsden CBE was there for decades rising to Director General and this means that all of the Deputy Governors involved in monetary policy have been in the past at HM Treasury. This is sadly true of the Office of National Statistics which has an HM Treasury “minder” in the shape of Nicholas Vaughan who in my opinion has been the main driving the use of rental equivalence in the CPIH inflation measure.


We find ourselves noting that 2018 has seen a weakening of the monetary impulse to the UK economy. Some of this will be from the return to a 0.5% Bank Rate last November and the end of the flow of liquidity from the Term Funding Scheme in February. But it is also true that this seems to be a wider move as we note fading in the Euro area monetary data too. Meanwhile it is boom time for consumer credit which of course means the lending we have is very unbalanced and as I feared at the time the banks through a big curve ball to the Bank of England’s credit surveys beginning last August. This sort of data gets ignored by many but actually often provides a useful leading indicator for the economy.

Meanwhile there is some good news to welcome but as we do let us note that somehow or other the “precious” seems to have been missed out again. From the BBC.

“Rent-to-own” shops that sell appliances and furniture for small weekly payments will face a price cap similar to limits on payday loans.

However, the financial regulator will not rush to impose the same restrictions on bank overdrafts.

Me on Core Finance TV


9 thoughts on “Dear Bank of England how is 8.8% consumer credit growth “weak” please?

  1. Debt cannot continue to grow at this rate; sooner or later people will have reached the point where all their disposable will be required just to service their debt.
    There will be a deluge of default, and it won’t be rivers with burst banks.

    • Hi therrawbuzzin

      Cheers for the musical link which I am listening to right now as I haven’t heard any Creedence for a while. As to your point about disposable income I saw something on Twitter earlier about rent taking up more than ever before earlier but now cannot find it. However in looking for it there was this on moneyCNN from the 18th.

      “Nearly 51 million households don’t earn enough to afford a monthly budget that includes housing, food, child care, health care, transportation and a cell phone, according to a study released Thursday by the United Way ALICE Project. That’s 43% of households in the United States. The figure includes the 16.1 million households living in poverty, as well as the 34.7 million families that the United Way has dubbed ALICE — Asset Limited, Income Constrained, Employed. This group makes less than what’s needed “to survive in the modern economy.”

    • I think I heard on the Radio today that the 25-40 year group in the UK are so heavily indebted that they carry a disproportionate share of unsecured lending and also pay the highest or penal lending rates.

  2. Hello Shaun,

    Desperation ? wages stagnant , shop prices falling – mind you rail tickets go up ,so does energy – gas & leccy

    now to cap profits from what used to be hire=purchase – so as to make it cheaper for the consumer ?

    so it will be soon we will have no interest payments on buying stuff, loans or savings

    you heard here first , folks , thats right next is 0% credit cards …. ( again and permanent)


    • Hi Forbin

      Yes you are right to remind us about the energy price rises as only yesterday there was this.

      “SSE has become the last of the “big six” energy companies to announce early summer price rises, with a 6.7% average increase in gas and electricity bills.” (BBC)

      Much of this is driven by the cost of green energy which I doubt the poor will be able to afford and whilst it is nice there are 6 car charging points on the outside of Battersea Park they are very rarely used. I regularly pass them and more often than not none are in use. I have just found an online site tracking this and only one is in use.

  3. It is no surprise that the claims about weak unsecured credit growth have coincided with controls on payday lenders, but not ordinary credit cards (handy for Lloyd’s, who recently bought MBNA). Flooding the market with cheap money ramped up house prices, thereby sucking ever more money into capital repayments until the bubble reached its greatest size (we now see the monthly house price indices gently turning down) while wages fall behind real inflation (along with increased NEST pension contributions). Car purchase is an expensive decision, so people think hard and maybe go for something a bit cheaper or don’t bother at all. What is left – just unsecured credit. Loans will be cheap, because they are a set figure with a set repayment rate – so we also see more “mortgage business” but fewer new loans as people rol over the mortgage to get cheaper borrowing -this has fuelled consumer spending in previous booms, but is now necessary just to keep going. Of course, one day, granny will fall off her perch and leave plenty of cash to pay the mortgage and other debts – hence the arguments about social care, the cost of which is likely to fall on more income taxation, further crushing current demand.

    Oh we, there is always your flexible friend – until the defaults start.

    • As it is three years since I was fired by Barclays for querying the truth behind their skills v bricks lending policies, I was interested to see that both they and Lloyd’s have lost 27% of their share value in that time. After Lloyd’s bought MBNA, both have big, profitable (at the moment) card operations.

      • Interesting interview with Jes “Hunt the whistleblower” Staley with the BBC, saying Barclays is going to tighten some loan criteria, especially LTV on houses in the SE. Has Jes heard what I said three years ago?

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