Credit Crunch II
The numbers certainly tell a worrying story:
Net lending to consumers fell by £377mn in December – the largest fall in consumer lending since the start of the data series in 1993.
Lending to corporate also contracted.
The broad measure of monetary supply (M4 excluding certain kinds of financial intermediaries) also saw a record fall.
Simply put – the supply of money and the volume of credit in the UK economy is going into reverse.
The charts below (all from the Bank) make this clear.
Mortgage lending remains very weak:
The growth rate of consumer credit which had staged a (very) modest recovery is turning down again:
Broad money growth fell:
Whilst the broadest measures of lending (M4L) showed that household credit growth remains very weak, lending to non-financial firms (private non-financial corporations (PNFCs)) remains negative and lending to none-intermediary financials (the pink line) is negative (but volatile):
Given that this all comes after the BOE has restarted quantitative easing the numbers will be especially concerning to the Bank.
Last year I warned that there were nascent signs of a second ‘credit crunch’ hitting the British economy in 2012, on yesterday’s numbers this may already be happening.
Tomorrow the TUC will host a seminar on reforming banking so that it supports the real economy (with speakers including the BOE’s Adam Posen, Professor Richard Werner and UBS’s George Magnus). This feels like a timely and urgent question to be asking.