Bank of England lending data echoes reliance on consumer demand, with corporate borrowing falling again
Bank of England lending data issued earlier this week (here) showed a reduction in the pace of growth of lending to the private sector for the third month in a row. But as lending to financial and non-financial firms fell, lending to households expanded.
Lending growth, month on a year ago
As the chart shows, this reduction is mainly driven by a fairly abrupt reduction in the pace of lending by banks to ‘other financial corporations’. But, in addition, the lending to non-financial firms has fallen back further into negative territory (the norm since the financial crisis). These figures compare lending with the same period a year ago, which tends to be a smoother measure but more recent movements take longer to show through fully in the figures. The Bank also publish a growth rate comparing three months with the previous three months, which is more timely but noisier. Here the scale of the reduction in lending to firms is seen to be quite large, falling at an annual rate of 2%.
Lending growth, three months on previous three month
In fact as the Financial Times reported on 29/7 (‘loans to big business drop in value by £5.5bn’), there was a fall in lending to firms of £5.5bn in June alone – the largest monthly drop since the data were first collected in 2011, and driven mainly by a sharp fall in lending to ‘business services’. The FT report the British Bankers’ Association reassurance that the reductions were “good housekeeping by corporates”; the BBA also pointed to increased borrowing from capital markets over the first half of the year.
That said, according to the Bank’s wider measure, in recent months corporate borrowing is lower across all different kinds of borrowing:
Leaving aside corporations, as the second chart shows, the total figures are supported by a slight revival in the pace of lending to households, with the annualised rate back up to 2.9% and in line with the recent peak around a year ago. This is driven in part by increased growth in mortgage lending, though at an annualised rate of 2.3% this is still incredibly modest relative to pre-crisis annual growth rates between 10 and 15%. Growth of consumer credit is more vigorous at an annualised 8.5% on a year ago, but also much lower than pre-crisis trends. (Though with existing levels of household indebtedness still extremely high, there may well be far less room to manoeuvre. See e.g. here for wider discussion of household debt.)
None of these constitute major movements in figures that can be volatile and that have previously shown real excess. But trends seem to mirror a growing reliance on the household sector that is seen in the National Accounts figures (here). Moreover, given the known vulnerabilities arising in the past from high indebtedness and sharp changes in bank lending, it would seem sensible to keep a watch on emerging trends.