This morning has opened with news that the winter chill affecting the UK has blown down Threadneedle Street and into the office of Governor Mark Carney at the Bank of England.
House prices fell by 0.3% over the month, after
taking account of seasonal factors…..“Month-to-month changes can be volatile, but the slowdown is consistent with signs of softening in the household sector in recent months.”
That was from the Nationwide Building Society – as ever care is needed as it is only Nationwide customers – and it backed it up by saying that the outlook was also not so good.
Similarly, mortgage approvals declined to their weakest
level for three years in December, at just 61,000. Activity
around the year-end can often be volatile, but the weak
reading comes off the back of subdued activity in October
and November (approvals were around 65,000 per month
compared to an average of 67,000 over the previous 12
months). Surveyors report that new buyer enquiries have
remained soft in recent months
So at this point Governor Carney will be miserably observing weaker business for the “precious” and a monthly house price fall. If he is cold prospects may not be so good. From the Guardian.
National Grid has issued a warning that the UK will not have enough gas to meet demand on Thursday, as temperatures plummeted and imports were hit by outages.
Good to see that there has been plenty of forward planning on this front.
The crunch is also the UK’s first major energy security test since the country’s biggest gas storage facility was closed by Centrica last year. The Rough site in the North Sea had accounted for 70% of the UK’s gas storage.
Forward guidance anyone?
Three cheers from Governor Carney
However there was something of a warm fire in the Governor’s office today as he observed this from his own data.
Mortgage approvals increased in January for both house purchase and remortgaging, to 67,478 and
The plan that started back in the summer of 2012 with the Funding for Lending Scheme continues.
Annual growth in secured lending was unchanged at 3.3% in January , with net lending at £3.4 billion.
In essence the plan was a type of credit easing where feeding cheap cash to the banks was designed to boost the UK economy via turning net mortgage lending from negative to positive. It took around a year to work but as mortgage rates fell ( initially by around 1% and later by more) net mortgage lending turned positive and has remained so. The Governor’s office will feel ever warmer as he observes this from the Nationwide.
net property wealth is the second largest store of household wealth after private pension wealth and amounted to c.£4.6 trillion over the July 2014 to June 2016 period – equivalent to around two and a half times UK output in 2016.
Any Bank of England economist looking for career advancement only has to write about these wealth effects feeding into the economy. Should he or she want solitude then all they have to do is point out the madness in using marginal prices especially at lower volumes to value a stock of housing. Then before you can cry “Oh Canada” they will be dispatched to a dark damp dungeon where the Bank of England cake trolley never arrives.
After the speech from Chair Powell on Tuesday this has become something of a theme and there is a clear example of it in the UK unsecured credit data.
The annual growth rate for consumer credit has slowed over the past year to 9.3%, driven by other
loans and advances.
This is where we get a lesson in number crunching from the Bank of England as this is represented as slowing whereas say wage growth is always on its way to a surge. In reality consumer credit has been on something of a tear and the monthly growth of around £1.4 billion has been fairly consistent whereas wage growth has so far gone nowhere. Or to put it another way the economy is growing at around 2% so there has been a 7/8% excess for quite some time now. One area which was driving this seems now to be a fading force.
The UK new car market declined in the first month of the year, according to figures released today by the Society of Motor Manufacturers and Traders (SMMT). 163,615 cars were driven off forecourts in January, a -6.3% fall compared with the same month in 2017.
This fading has been reflected in the UK Finance and Leasing Association figures.
New business in December 2017 fell 2% by value and 5% by volume compared with the same month in 2016.
Yet unsecured lending has continued on its not so merry path and has now risen to £207.5 billion.
This was the main aim of the Bank of England especially for the smaller business sector, at least that is what we were told. Indeed the scheme was modified we were told to improve that success. How is that going?
Lending to non-financial businesses fell by £1.6 billion in January . Loans to small-and-medium
sized enterprises fell by £0.7 billion, the largest decline since December 2014.
If we look for some perspective we see that three of the last four months have seen credit contractions and the six month average is -£100 million. So the Bank of England arrow if I may put this in Abenomics terms missed the smaller businesses target completely but scored a bullseye in consumer credit which is still growing at 9.3% per annum. The latter is of course in spite of us being told that conditions were much tighter in the latter part of 2017.
Those who have followed the UK economy over the years and indeed decades will know that today’s data follows a familiar theme. An easing of monetary policy such as the credit easing of the FLS and now the Term Funding Scheme ( £115.4 billion) followed by the Bank Rate cut and Sledgehammer QE of August 2016 would be expected to have the following results. A rise in mortgage lending and then later a rise in unsecured lending it has been ever thus. This is because it is easy to do for the banks and it is an area in which they excel whereas business lending is both more complex and harder to do. Track records do matter as I recall my late father telling me (he had a plastering business) that when he really needed finance the banks took it away whereas at other times it was plentiful. Please remember that when we are told small businesses “do not want to borrow” it may be because they have much longer memories than the banks.
Oh and in case the Bank of England tries to tell us unsecured credit growth can be cut by a Bank Rate rise or two please remember that credit card debt costs around 18% per annum according to its data.
If we switch to the real economy then there is another area where the Bank of England is lost in a land of confusion. This is the impact of the post EU leave vote fall in the UK Pound £ which according to the PMI business survey this morning seems to have helped UK manufacturers.
the continued rise in export orders s and an uplift in new orders from the domestic market provided evidence that the
foundations for continued growth were still buoyant………New orders
showed the largest monthly gain since November
and are outpacing the rate of growth in output to
one of the greatest extents in more than a decade.
It is possible that we are seeing import substitution as well as export growth. It makes you wonder how well they would be doing if the banks supported them with more and better finance doesn’t it?
Me on Core Finance TV