Money & Credit (Dec.) - Capital Economics
UK Economics

Money & Credit (Dec.)

UK Data Response
Written by Ruth Gregory

The easing in the COVID-19 restrictions meant that businesses did not rush as fast to take on more debt in December. And with households investing in property and strengthening their balance sheets, there is scope for household spending, and GDP, to rebound strongly once the restrictions are eventually lifted.

Easing in the rush for cash

  • The easing in the COVID-19 restrictions meant that businesses did not rush as fast to take on more debt in December. And with households investing in property and strengthening their balance sheets, there is scope for household spending, and GDP, to rebound strongly once the restrictions are eventually lifted.
  • In aggregate, non-financial corporates repaid £0.5bn of bank loans in December, after borrowing £2.4bn in November. And the £1.6bn that non-financial businesses sourced from the financial markets was also below the £2.4bn raised in November. That said, while large businesses paid back £1.1bn of bank loans, small and medium-sized businesses were once again forced to take on more debt to survive. (See Chart 1.) They borrowed an additional £0.7bn from banks in December. At least that was small relative to the average of £1.8bn borrowed in the previous three months. So the immediate rush for cash had slowed.
  • Meanwhile, consumers remained wary about financing big ticket purchases with credit, repaying £1.0bn (consensus £1.0bn) of unsecured loans. But the amount of cash in households’ bank accounts rose by £20.9bn, up from £18.4bn in November. And with households paying down debt now, they should be in a good position to start spending again once the COVID-19 restrictions are eventually lifted.
  • What’s more, households continued to invest in property suggesting they remain relatively upbeat about their own economic prospects. New mortgage approvals ticked down from 105,324 in November to 103,381 in December. But approvals were still 41% above their pre-crisis level.
  • Finally, the rise in the amount of cash households and businesses are holding in bank and building societies meant that annual growth in broad money rose yet again, from 13.9% in November to 14.1% in December. (See Table 1.) But excess capacity in the economy over the next few years will prevent this extra liquidity from causing a surge in inflation in the next year or two.
  • Overall, these figures provide reason to think that the economy regained some strength in December, some of which probably disappeared again during January’s lockdown. Even so, with businesses now struggling with a mountain of debt, it is clear that it will be down to consumers to drive the recovery once the restrictions are eventually lifted.

Chart 1: Bank Lending to SMEs and Large Businesses (% y/y)

Source: Bank of England

Table 1: Lending Figures

Broad Money (M4ex)

Total Credit (M4L)

H’hold Credit (M4L)

PNFC Credit (M4L)

Consumer Credit

Mortgage Apps For

m/m £bn

%y/y

m/m £bn

%y/y

m/m £bn

%y/y

m/m £bn

%y/y

m/m £bn

%y/y

Purchase 000s

Sep.

10.6

11.6

3.3

4.0

3.7

1.9

-0.4

8.5

-0.8

-4.7

92,402

Oct.

34.3

13.2

7.8

3.9

3.6

1.9

-1.9

7.9

-0.6

-5.5

98,195

Nov.

33.0

13.9

18.8

4.5

4.5

2.0

1.5

8.7

-1.5

-6.5

105,324

Dec.

13.2

14.1

1.3

4.2

4.3

2.0

1.4

9.5

-1.0

-7.5

103,381

Sources: Refinitiv, BoE


Ruth Gregory, Senior UK Economist, +44 (0)7747 466 451, ruth.gregory@capitaleconomics.com