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

Money & Credit (Nov.)

UK Data Response
Written by Ruth Gregory

November’s money and credit figures highlighted the divergence between households who continued to pay back credit and invest in property, and small businesses who were once again forced to load up on debt just to survive.

Households in a good position to spend, but small businesses struggling

  • November’s money and credit figures highlighted the divergence between households who continued to pay back credit and invest in property, and small businesses who were once again forced to load up on debt just to survive.
  • Households deleveraged in November at a slower pace than during the lockdown in spring 2020 when they paid back £3.1bn in March and £7.5bn in April. Even so, their reduced ability to spend during November’s lockdown meant that they still repaid £1.5bn of unsecured loans in November, in line with the consensus forecast. (See Chart 1.) And the amount of cash in households’ bank accounts rose by £17.6bn, similar to the average between March and June of £17.5bn a month.
  • What’s more, the sharp rise in the number of new mortgages approved, from 98,338 in October to 104,969 in November, suggests households remain relatively upbeat about the economic outlook. That left mortgage approvals 43% above their pre-crisis level and at their highest since August 2007. Taken together with the strength of household balance sheets, this adds weight to our view that household spending will rebound strongly once the COVID-19 restrictions are eventually lifted, perhaps in the second half of this year.
  • By contrast, businesses were once again forced to take on more debt to survive. Small businesses borrowed an additional £1.8bn from banks in November. Large businesses borrowed £0.2bn, as well as sourcing an extra £2.3bn of finance from the financial markets. At least the extra £2.0bn of borrowing in aggregate from banks in November was a far cry from the huge £31bn that businesses added to their debt pile ahead of the first lockdown in March.
  • Finally, the rise in the amount of cash households are holding in bank and building society accounts and in bank deposits of businesses meant that annual growth in broad money edged up from 13.2% in October to 13.9% in November. (See Table 1.) But as there will be plenty of spare capacity in the economy for a few years, we doubt this extra liquidity will prompt a surge in inflation in the next year or two.
  • Overall, with households investing in property and strengthening their balance sheets, there is plenty of scope for household spending to rebound strongly once the COVID-19 restrictions are eventually lifted.

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

Aug.

0.6

11.7

-3.3

4.2

3.2

1.8

2.1

9.8

0.1

-4.0

86,174

Sep.

10.5

11.6

3.1

4.0

4.2

1.8

-4.4

8.3

-0.8

-4.7

92,594

Oct.

33.5

13.2

7.3

3.8

3.8

1.7

-4.9

6.9

-0.7

-5.5

98,338

Nov.

31.9

13.9

18.2

4.5

4.1

1.6

2.0

6.8

-1.5

-6.7

104,969

Sources: Refinitiv, BoE


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