From the TUC

Credit Crunch II

01 Feb 2012, by Guest in Economics

Yesterday’s money supply and bank lending data from the Bank of England (spread across three different statistical releases) received an unusual amount of media attention.*

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.  

3 Responses to Credit Crunch II

  1. jonathan
    Feb 3rd 2012, 5:40 pm

    Is credit crunch the right phrase? Is it more low demand causes credit to contract? I tend to reserve crunch for when money isn’t available – when mistrust is high or when the government imposes terms, like very high rates, that make funds too costly.

  2. QE: welcome but more needs to be done | ToUChstone blog: A public policy blog from the TUC
    Feb 9th 2012, 12:29 pm

    […] last week’s money and lending showed the UK appears to be caught in a second credit crunch. Lending to non-financial firms is falling […]

  3. Benchmarking a potential recovery | ToUChstone blog: A public policy blog from the TUC
    Feb 23rd 2012, 1:03 pm

    […] addition the latest money supply numbers point to weakness and the latest Bank of England MPC minutes are filled with gloom. Decent growth in January could be […]