September’s money and credit data showed that the mini-boom in the housing market continued, but a fall in consumer credit suggests that consumer spending was already faltering before the latest round of restrictions to curb the spread of the virus were imposed.
Mini-housing boom continues but consumers shun other borrowing
- September’s money and credit data showed that the mini-boom in the housing market continued, but a fall in consumer credit suggests that consumer spending was already faltering before the latest round of restrictions to curb the spread of the virus were imposed.
- The latest money and credit data paint two very different pictures. On the one hand, government support for the housing market in the form of the temporary stamp duty cut pushed up mortgage approvals from 85,530 in August to 91,454 in September, roughly 24% above their February level. (See Table 1.) On the other hand, the end of the Eat Out to Help Out restaurant discount scheme and the winding down of the national furlough scheme have hit consumers’ willingness to borrow and spend. Indeed, after borrowing £0.3bn in August consumers paid back £0.6bn (consensus forecast +£0.75bn, CE +£0.2bn) of credit in September. (See Chart 1.) This provides further evidence that the recovery was already faltering at the end of Q3, even before the latest round of COVID-19 restrictions were imposed.
- Meanwhile, there was little evidence that firms are starting to hoard cash again. In aggregate, non-financial companies paid back £0.5bn of loans. However, there were some marked differences between firms. Large firms paid back £5.8bn of loans in September, replacing most of this with equity, while SMEs borrowed an additional £1.6bn.
- Finally, annual growth in broad money edged down from 11.7% in August to 11.6% in September. But the monthly rise of 0.4% was bigger than the 0.0% recorded in August. In the year to date, M4 ex. has risen by £220bn and M0 by £257bn, showing that the rise in broad money is predominantly due to QE rather than lending. If, as we expect, the Monetary Policy Committee announces £100bn more QE next week, then the pace of money growth may accelerate again over the next few months.
- Overall, these figures support other evidence that the recovery continued to peter out at the end Q3. The additional COVID-19 restrictions imposed since September will probably prompt businesses and households to start to conserve cash again, weighing on spending and investment. We already expect the recovery to stall in Q4, and it could go into reverse.
Chart 1: Consumer Credit
Table 1: Lending Figures
Broad Money (M4ex)
Total Credit (M4L)
H’hold Credit (M4L)
PNFC Credit (M4L)
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Sources: Refinitiv, BoE
Thomas Pugh, UK Economist, +44 7568 378 042, email@example.com