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

Money & Credit (Jul.)

UK Data Response
Written by Andrew Wishart

July’s money and credit data confirm the resurgence in the housing market while recovering consumer credit suggests that households’ appetite for big ticket purchases is returning.

Households resume pre-virus borrowing habits

  • July’s money and credit data confirm the resurgence in the housing market while recovering consumer credit suggests that households’ appetite for big ticket purchases is returning.
  • The rise in mortgage approvals from 39,902 in June to 66,281 in July provided the first hard evidence of the mini-boom in the housing market evident in the survey data thanks to pent-up demand and the stamp duty holiday. (See here.). (See Table 1.) While a touch below the 73,681approvals in February, it is roughly in line with the pre-virus 12-month average.
  • Unsecured consumer borrowing also returned to normal in an encouraging sign that fear of the virus has not prevented a return of big ticket purchases. Following four months in which consumers paid back unsecured loans, consumer credit rose by £1.2bn in July, similar to the pre-virus norm. (See Chart 1.)
  • Meanwhile, the rate at which firms borrowed continued to ease. In aggregate, non-financial companies borrowed £4bn, which is close to pre-virus levels and a far cry from the £31bn borrowed at the height of the crisis in March.
  • Within that, large businesses paid back £7.7bn of bank loans, replacing some of that with cheaper bond and equity issuance. In contrast, small businesses continued to increase bank borrowing, by £5.3bn, through the government’s Bounce Back Loan Scheme. So the cashflow crisis for most businesses appears to have abated, but many small businesses may still be struggling to stay afloat. (See here.)
  • Finally, annual growth in broad money rose to 12.4%. But the monthly rise of 1.1% was smaller than at the height of the crisis when the pace of QE and business borrowing was highest. In the year to date M4 ex. has risen by £213bn and M0 by £235bn, showing that the rise in broad money is predominantly due to QE rather than lending. So as the pace of QE slows, broad money growth is likely to ease.
  • Overall, these figures support other evidence that the economy continued to recover in July. But we still think that the realisation of more job losses after the furlough scheme started to be wound up in August will cause the recovery to slow.

Chart 1: Consumer Credit

Source: Refinitiv

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

Apr.

37.5

9.0

-11.2

5.9

-5.0

2.5

0.1

8.1

-7.4

-0.4

15,867

May

54.9

11.4

8.3

6.3

0.2

2.2

9.9

10.4

-4.4

-2.9

9,285

Jun.

16.8

12.0

11.1

6.3

3.0

2.1

3.9

10.9

-0.4

-3.7

39,902

Jul.

26.3

12.4

-0.4

5.5

2.4

2.0

-1.0

10.2

1.2

-3.6

66,281

Sources: Refinitiv, BoE


Andrew Wishart, UK Economist, +44 7427 682 411, andrew.wishart@capitaleconomics.com