Climate change is on Mark Carney’s agenda as he ignores the rise in consumer credit

As November ends and we move into December there is a fair bit for the Bank of England to consider.Only a week ago we were told this by the new “flash” Markit PMI business survey.

“The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, and also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy”

Poor old Markit never seem to question why more stimulus is apparently nearly always needed, But this was quite a different outlook to what the Bank of England had told us earlier this month.

The MPC expected continued subdued growth, of 0.2%, in 2019 Q4.

Another factor to add in is that the Bank of England has in an example of being once bitten, twice shy lost a bit of faith in the Markit PMIs since the day the absent-minded professor Ben Broadbent so lauded them.

Although business survey indicators, taken together, pointed to a contraction in GDP in Q4, the relationship between survey responses and growth appeared to have been weaker at times of uncertainty and some firms may have considered a no-deal Brexit as likely when they had
responded to the latest available surveys/

Even central bankers must realise that the panicky hints of a 0.1% Bank Rate based on the post EU Leave vote PMIs was a complete failure.

The UK Pound £

This has been in a stronger phase and was noted in the monetary minutes.

The sterling exchange rate index had
increased by around 3% since the previous MPC meeting, and sterling implied volatilities had fallen back
somewhat, although they remained significantly higher than their euro and dollar counterparts.

If we look now we see that the broad effective or trade weighted exchange rate fell to around 73.5 in mid August but is now 79.3. Under the old Bank of England rule of thumb that was considered to be nearly equivalent to a 1.5% interest-rate rise. Even if we reduce the impact as times have changed I think and trim the effect we are still left in my opinion with say a 1% rise.

We can look at that in two ways.Firstly it has a material impact and secondly it has hard not to have a wry smile. After all who can actually see the present Bank of England raising interest-rates by 1%?! Events would have to have taken over.

Broad Money

We can also look at the likely outlook via the money supply numbers. This morning the Bank of England has told us this.

Broad money (M4ex) is a measure of the amount of money held by households, non-financial businesses (PNFCs) and financial companies that do not act as intermediaries, such as pension funds or insurance companies (NIOFCs). Total money holdings in October rose by £1.6 billion, this was weak compared to both September and the average of the previous six-months.

That is a slowing after three better months. This is an erratic series and we see that this month businesses were responsible.

The amount of money held by households rose by £3.7 billion in October, primarily driven by increased holdings of interest bearing sight deposits. NIOFC’s money holdings fell by £2.4 billion, while the amount held by PNFCs rose by £0.4 billion.

If we switch to what does this mean? Well broad money impacts nominal output around 18 months to 2 years ahead.  So with an annual rate of growth of 3.6% we would expect economic growth of 1.6% assuming the Bank of England hits its 2% inflation target. That’s the theory as reality is usually not so convenient so please take this as a broad brush.

The good news is that the last 6 months or so have seen a pick-up so we may see one in 2021.The problem is that the numbers had been falling since the impact of the “Sledgehammer QE” of the summer/autumn of 2016. So it is no great surprise to those who look at the monetary data that economic growth has been weak and using it suggests similar as we head into 2020.

Mortgage Lending

We cannot look into the mind of a central banker without noting the large area taken up by the housing market.From that perspective this is good news below.

Net mortgage borrowing by households was £4.3 billion in October, £0.4 billion higher than in September. The recent stability in the monthly flows has left the annual growth rate unchanged at 3.2%, close to levels seen over the past three years. Mortgage approvals for house purchase (an indicator for future lending) fell slightly in October, to 65,000, but remained within the narrow range seen over the past two years.

Indeed their hearts must have been racing when they read this in the Guardian yesterday.

House price growth in the UK has picked up

Only to be dashed when they read further down.

The average price of a home rose by 0.5% in November to £215,734, according to Nationwide building society. This is the biggest monthly rise since July 2018, and up from 0.2% in October. The annual growth rate picked up to 0.8% from 0.4%, the highest since April.

Whilst we welcome the relative improvement in affordability from the point of view of the Bank of England this will lead to head scratching. They went to a lot of effort with the Funding for Lending Scheme back in the summer of 2012 to get net mortgage lending back into positive territory. But it and real wage growth have lost their mojo for now in this area.

Consumer Credit

By contrast this has lifted off again.

The extra amount borrowed by consumers in order to buy goods and services rose to £1.3 billion in October, above the £1.1 billion average since July 2018. Within this, net borrowing for both credit cards and other loans and advances rose, to £0.4 billion and £1.0 billion respectively.

The annual growth rate of consumer credit was 6.1% in October, up from 5.9% in September.

Is there anything else in the UK economy rising at an annual rate of 6.1%? Also there is an element of being economical with the truth below.

This is the first increase in the annual growth rate since June 2018, but it remains considerably lower than its post-crisis peak of 10.9% in November 2016.

You see last month they revised the figures by adding an extra £6.1 billion or around 5 months worth of growth at the current rate. Anyway the total is now £225 billion.

Comment

For the moment the Bank of England is in a type of purdah period which the Governor is using to expand into other areas.

The world needs a new, sustainable financial system to stop runaway climate change…….A new, sustainable financial system is under construction. It is funding the initiatives and innovations of the private sector and amplifying the effectiveness of governments’ climate policies—it could even accelerate the transition to a low-carbon economy. ( IMF )

Those worried about the future of the planet should be terrified at the present march of the globetrotting central bankers onto their lawns.Just look at their track record! But I guess Governor Carney is in need of a new job.

Returning to his present job we see that an interest-rate cut on the 19th of next month is looking increasingly likely. After all they are seldom much bothered by issues such as consumer credit rising although these days they seem to be having ever more trouble simply counting.

Some statistics on the outstanding amount of lending and deposits within the banking sector have been revised for September. In the first vintage of September’s statistics, some of this data was reported using an approach that was inconsistent to previous data, and reduced the total amounts outstanding. The current vintage of data corrects for this.

Even less reason for them to be involved in the future of the planet and that is before we get to their forecasting record….

The Investing Channel

19 thoughts on “Climate change is on Mark Carney’s agenda as he ignores the rise in consumer credit

  1. Hello Shaun,

    Re: “A new, sustainable financial system is under construction.”

    should strike fear into the heart of every reader …….

    Forbin

    • Even that has an impact on the UK.

      Just suppose all of the UK population took the view they wouldn’t buy clothes unless absolutely necessary, think of the effect that would have on retail profits and their workers?

      A number of retailers would go to the wall and mass redundancies and the loss of wages to the Inland Revenue.

      All this climate agenda OK in theory but it also has consequences other ways.

  2. So a potential interest cut in December!

    I did think that should happen and forbin and a few others thought January. I think there could be two cuts but all depends who what the government will look like, will Borris get a majority or will it be a hung parliament.

    Though Borris is in the lead a lot of marginals will make the main difference.

    I happen to think we are on the back foot with interest rate cuts and they take time to have an effect.

    Most are on fixed rates now but the few that aren’t could benefit and a cut will assist new borrowers. One has to do everything to help the economy there is now a possibility of 0.2% contraction now in third quarter if I have that correct, if not someone will correct me.

    China growth is still struggling this will affect the world economy I suspect price or goods will fall thus reducing inflation.

    As for the UK we heard today of thousands of jobs going from the tie up with National Power and EON there will be hundreds if not thousands of jobs going in the retail sector after Christmas some of the big stores like Debenhams have announced this already and House of Fraser could do so as well.

    There are other opportunities in the health sector both in hospitals and of course the social sector. I do think employment may have peaked however and what happens in the government I fell next year will be difficult next year.

    If Corby got in there would be a pick up in some industries but I doubt he will get in myself.

    Overview:

    I feel the UK should have cut interest before now, we are behind the curve, I don’t think inflation is the worry in the new world of trading, I take the view prices will fall and we could end up with deflation, but could be wrong on the latter.

    The world is overpopulated and Northern Power tie up with EON is just an example of more tie ups to reduce costs and workers. In the UK they grumble about not having enough immigrants to pick vegetables from the fields but robot technology is moving in strides, they do have robots to pick apples from trees now.

    Technology will all play its part technically you don’t need call centres most questions and answers are able to be dealt with on websites and only the most complex need an operator.

    It wont be long before all the tills in supermarkets do away with check out assistants and ensure there are enough security measures on all goods so no one can leave a store if they haven’t been scanned.

    The quicker all this takes effect in the UK the more productive we will become and workers will have to seek other work.

    Unless production improves in the UK and we deal with the debts there will be trouble ahead.

    • Hi Peter

      I have changed the month to December for you as I think that is what you meant. Having used an automated till at the supermarket on my way home earlier I know what you mean but it is also true things have changed in terms of extra time such as shopping on Sundays. Indeed from midday to 5/6pm there is no difference in my part of town from the rest of the week.

      That is very different to when I was a boy and must have reduced labour productivity but on the other hand has presumably improved store figures. So it is not all one way

  3. Great article as always Shaun.

    They should give themselves a pat on the back.

    Housing more unavoidable – Tick
    Consumer debt increasing – Tick
    Zirp still ongoing – Tick
    BOE pensions still linked to RPI – Tick
    Voters still unaware of the BOE – Tick

  4. Shaun, thanks for this but “The world needs a new, sustainable financial system to stop runaway climate change” – I now have an impage of Mark Carney glued to a cake trolley outside Royal Exchange!

    • Like that?

      The current financial model is unsustainable increasing debt throughout the world!

      So why the climate changers never mentioning the ballooning debt is one of the contributors. Turn of the credit tap and people will have to cut down.

      However all that will have serious financial consequences including a world recession.

      But if its doesn’t happen it will happen in due course by large defaults.

  5. Aren’t they just starting to make increasing excuses for the coming storms with all this “climate change” BS? When the world sinks into chaos caused by all these central bankers the climate will provide the perfect excuse as to why it is all good for us.

    • oh I don’t think they need climate change as an “excuse ”

      mind you they do seem to latch onto what ever the topic of the day is , ie Brexit , Trump, Kardashians , etc

      Forbin

  6. Great blog and video as usual, Shaun. Re your video, I notice the chart comparing a house price index with an index of the owner’s equivalent rent of residences uses the FHFA series rather than the national Case-Shiller house price index that you have quoted elsewhere. The FHFA series has the advantage in terms of geographic coverage, although the Case-Shiller index is much better in this regard now that a national index is available that goes beyond the old 20-city composite. The purchase only FHFA (the overall series also includes reappraisal data) is running a little bit hotter than the Case-Shiller index, with a 5.1% annual inflation rate for September and a 0.6% monthly increase for September for the seasonally adjusted index.
    “…[A] big difference between the big two indices is that Case-Shiller data included many non-agency homes financed with risky loans. These homes saw more appreciation during the boom, and larger price declines afterward.” The FHFA series involves conforming, conventional mortgages from Fannie Mae and Freddie Mac. For this reason, I believe you are correct in generally referencing the Case-Shiller series in preference to the FHFA series, although both have their uses, and if you are looking for certain regional detail, only the FHFA data may have it.
    Will US house prices really weaken substantially over the next year? The overall real GDP growth rate is decelerating but there certainly are supply pressures and cost pressures on the housing market that could at least keep house prices rising near the current rates. Also, it looks like agreement is close on changes to the USMCA in response to American demands. This will hugely improve the chances of USMCA being ratified in the US within the next few months, and should give a boost to the American economy, and to the North American economy in general.

    • Hi Andrew and thank you

      That is a good spot on the index and a reminder that there is not just one house price index as it depends on what you cover. Now the Halifax has refined its procedures the UK indices are telling the same story but not exactly the same numbers.

      I like the idea of having re-appraisal numbers though.It may well be a factor driven by London’s circumstances but new developments especially at a higher £ do sometimes skew the numbers. As we so often discuss there seems to be trouble with bringing in some sort of quality measure.

  7. As the new generation of climate models (CMIP6) show no room for human involvement in climate change, and as these will be the only models recognised and approved by the IPCC from 2022 onwards, Carney had better get his skates on if he’s going to scapegoat climate change for his incompetence.

    • Hi therrawbuzzin

      At the moment I think that his plan is to get a new job. It would suit the establishment to have a scapegoat as they know that some things are wobbling. Some of it is pure madness as when the Riksbank announced it would no longer invest in companies involved in climate change and then cut some investments in Australia.What were they doing investing there anyway?

      “Last year the Executive Board decided that sustainability aspects will be given consideration in investment decisions. This can mean investing some of the foreign exchange reserves in particularly climate-friendly assets, such as green bonds. “However, I have doubts about this type of strategy, partly because our investments are largely in bonds issued by central and federal governments,” explained Mr Flodén. It is difficult to earmark money for special projects in government budgets.

      On the other hand, the Riksbank can make an overall assessment of how the states work to achieve a sustainable climate and can reject issuers with a large climate impact. “We have therefore recently sold holdings of bonds issued by the Canadian province of Alberta and the Australian states of Queensland and Western Australia,” said Mr Flodén.”

      • Very interesting, Shaun, and very troubling for Albertans. A spokeswoman for Alberta premier Jason Kenney said: “If the Swedish central bank is really concerned with making a difference on climate change, they need to be investing more in ethical producers such as Alberta which have shown dramatic gains in reducing emissions.” The Greenpeace Canada Senior Energy Strategist responded: Central bankers aren’t your typical tree huggers, so Canadian politicians should take note when they start blacklisting government bonds over climate concerns.” Maybe they weren’t your typical tree huggers in the past, but things are changing fast.

  8. If runaway banks couldn’t be stopped what’s the chances of stopping runaway climate change?
    If they can’t measure inflation, consumer credit etc, how will they measure “sustainability”? Saving trees by not using paper to print money?

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