Today brings us to a sector of the UK economy that has been running rather red-hot which is the unsecured credit data. The BBC caught up with this on Monday albeit from data which is incomplete.
Debt on UK credit cards is growing at the fastest rate since before the financial crisis, figures show.
The more regular use of these cards for smaller, contactless purchases explains in part the greater debt being built up over short periods.
However, figures from UK Finance show that the annual growth rate in outstanding credit card debt of 8.3% in February was the highest for 12 years.
Some of you will already be smelling a rat as you recall that it has been over 10% in response to the Bank of England opening the credit taps with its “Sledgehammer” in August 2016. It is interesting to see though that on this series we are finally getting the same message. Oh and if you are wondering who UK Finance are they are the new name for the British Bankers Association in the same way that the leaky Windscale nuclear reprocessing plant became the leak-free Sellafield.
If we look further into the data there was potentially good news for the economy which does fit with news elsewhere.
“Bank lending to businesses saw modest year-on-year growth in February, driven by investment within the manufacturing sector”
The data from the Bank of England could have been released with KC and the Sunshine Band in the background.
Now it’s the same old song
But with a different meaning
Since you been gone
It’s the same old song
Or to put it another way.
The annual growth rate for consumer credit ticked up slightly to 9.4% (Table J), although net lending remains broadly in line with its previous six-month average.
The monthly number rose from £1.3 billion in January to £1.6 billion in February and the total is now £209.6 billion. If we break that down the fastest growing component is credit cards which if we annualise the quarterly growth rate have risen by 11.3% and now 11.2% in 2018 so far meaning the total is now £70.6 billion. But for that we would be worried by the larger other loans and advances ( personal loans and overdrafts ) which total some £138.6 billion and on the same criteria have grown at 8.2% and 8.5%. Individual months can be erratic but this sector has been a case of the trend is your friend for a couple of years or so now.
Never believe anything until it is officially denied
One of my favourite phrases because it works so well. Brought to you this time by the Bank of England credit conditions survey and the emphasis is mine.
The availability of unsecured credit to households was reported to have decreased again in Q4, such that reductions were reported in all four quarters of 2017 (Chart 1). Lenders expected a significant decrease in Q1. Credit scoring criteria for granting total unsecured loan applications tightened again in Q4, and lenders expected them to tighten significantly further in Q1.
So they reduced it in the third quarter if you recall as well cut it back in the 4th and then gave it a “significant decrease” to er 9.4% in February. This is heading into comical Ali territory now.
Back in February 2017 Governor Mark Carney told us this at the Inflation Report press conference.
From an MPC perspective, just to put those numbers into
context, on the most expansive definition, the increase in
consumer borrowing would contribute up to a tenth of the
increase in consumption. So it’s something, but it’s not
everything. This is not a debt-fuelled consumer expansion
that we’re dealing with.
Of course he may still have been rattled by the opening question.
Governor, back in August the forecast for GDP for this year
was 0.8%. Now it’s being forecast at 2.0%. That’s a really
hefty adjustment. What went wrong with your initial
This is not a debt-fuelled consumer expansion
I would like to stick with the statement by the Governor and bring in this from the Office of National Statistics earlier.
The accumulation of debt (measured by the amount of short-term and long-term loans households took out) in 2017 outstripped the amount of total financial assets they accumulated in the same period. This was the first time this happened since records began in 1987.
Also is anybody thinking of the Sledgehammer QE of August 2016 and of course the promises back then of further “muscular” action in November 2016?
Up until Quarter 3 2016, the households sector was a net lender. In the five quarters since, households have been net borrowers at an average of £3.3 billion per quarter. As a result, 2017 was the first year in which households were net borrowers – meaning that they had to borrow in order to fund their spending and investment activities.
Perhaps this is what the Governor meant at Mansion House last year.
This stimulus is working. Credit is widely available, the cost of borrowing is near record lows, the economy has outperformed expectations ( his especially).
This was supposed to be the main target of the Funding for Lending Scheme as it was fired up in the summer of 2012. The priority was smaller businesses so how is that going?
Net lending to SMEs has increased following a rather weak January
It rose by £700 million after falling by £700 million then. This means that the annual growth rate has risen from 0% to 0.1% and reminds us yet again of the true meaning of the word counterfactual.
So the beat goes on for UK unsecured credit although it seems to have taken UK Finance quite some time to catch up. The national accounts breakdown also tells us that there has been something of a shift although it includes secured debt and has issues with accuracy. On that subject if we stay with GDP here is an example of something from the research centre of the UK ONS.
Our initial results suggest that imputation of pension
accruals raises both the Gini coefficient and the geometric mean of equivalised household income materially, while the effects of imputing investment income are more marked on the Gini coefficient than on the geometric mean of household income.
So if we have imputed rent, pensions and investment income why not stop counting anything and simply input the lot and tell us that tractor production is rising. You may not be surprised to read that one of the authors is Martin Weale who is building a consistent track record.
Moving back to unsecured debt I note that the Bank of England ( of course Dr. Weale’s former employer ) is of course vigilant. But in spite of all this vigilance even growth at these levels does not seem to be helping the retail sector much as we observe a steady stream of receiverships and closures. On the more hopeful side falling inflation will help improve the real wages situation this year and mean that we may get some more of this.
UK gross domestic product (GDP) increased by 1.8% between 2016 and 2017, revised upwards by 0.1 percentage points from the second estimate of GDP published on 22 February 2018.
Happy Easter to you all.