British Household Lending Highest Since Financial Crisis
May 5th 2014, 5:10 pm
#1
BE Vendor - Finance Specialist
Thread Starter
Joined: Apr 2014
Posts: 48
British Household Lending Highest Since Financial Crisis
British households borrowed more in March than in any month since before the onset of the financial crisis, a sign that the economic recovery that began last year could be sustained.
But some see a risk that Britain is returning to the failed model of the past, with growth driven by consumer spending that in turn relies on higher and higher levels of borrowing.
Data from the Bank of England Thursday showed that a £1.1 billion ($1.86 billion) increase in unsecured personal loans and overdrafts boosted total consumer lending to a near six year high of £2.9 billion in March.
The rise in lending by British bank account holders without securing the debt on bricks and mortar, was the biggest since February 2008—months before the financial crisis hit banks around the world who then clamped down on lending—and likely represents a turning point in consumer's confidence in the economy and their ability to repay debt on a month-to-month basis.
"Overall, it does appear that markedly improved consumer confidence means that people have become more prepared to borrow in recent months," said Howard Archer, chief U.K. and euro-zone economist for IHS Global Insight. "The jump in unsecured consumer credit in March will likely fuel concern that U.K. growth has been too dependent so far on consumer spending."
Research by the London School of Economics suggests wages won't grow substantially for some time, suggesting debt will grow further in order for consumer spending to continue to rise.
"It is quite clear that the economy is still well below full employment and there is a large amount of slack in the labor market," former Bank of England member David Blanchflower, currently a professor of economics at Dartmouth College in Hannover, N.H., and Stephen Machin, professor of economics at University College London and a member of the Low Pay Commission, said in the LSE research. "We see little evidence of widespread skill shortages, which would push up wages; and public sector pay freezes with continuing redundancies continue to push down on workers' bargaining power."
There are signs, though, that the economy is increasingly being supported by more broad-based activity with a separate survey published Thursday showed that the manufacturing sector gained more ground in April.
Data firm Markit and the Chartered Institute of Purchasing & Supply's monthly purchasing managers index of the manufacturing sector rose to a five month high of 57.3 in April, from 55.8 in March. Economists had forecast the index slipped to 55.0.
A figure above 50 shows the sector is expanding, while below that level means contraction.
"The latest data on the manufacturing sector and household borrowing have provided some further encouraging evidence of a rebalancing of the U.K.'s economic recovery away from excessive dependence on housing and consumers toward industry," said Jonathan Loynes, chief European economist at Capital Economics.
Other figures published Thursday depicted the continued increase in U.K. house prices, although there was some indication that new, tougher mortgage lending rules may stem the continued surge in prices.
U.K. lender Nationwide said that the average price of a home in April, purchased by its own mortgage customers rose 1.2% on the months and 10.9% on the year to a six-and-a-half year high of £183,577. The annual rise was the biggest since June 2007, while the average price was the highest since November 2007 and is now less than £3,000 below the peak in its own series.
"House price growth is outstripping income growth by a wide margin. The risk is that unless supply accelerates significantly, affordability will become stretched," Nationwide's chief economist Robert Gardner said.
The BOE's data, meanwhile, showed the number of new mortgages approved in March fell to 67,135 from 69,592 a month earlier, the lowest level since September and confounding analysts' expectations for a rise to 72,000.
Source: Wall Street Journal
But some see a risk that Britain is returning to the failed model of the past, with growth driven by consumer spending that in turn relies on higher and higher levels of borrowing.
Data from the Bank of England Thursday showed that a £1.1 billion ($1.86 billion) increase in unsecured personal loans and overdrafts boosted total consumer lending to a near six year high of £2.9 billion in March.
The rise in lending by British bank account holders without securing the debt on bricks and mortar, was the biggest since February 2008—months before the financial crisis hit banks around the world who then clamped down on lending—and likely represents a turning point in consumer's confidence in the economy and their ability to repay debt on a month-to-month basis.
"Overall, it does appear that markedly improved consumer confidence means that people have become more prepared to borrow in recent months," said Howard Archer, chief U.K. and euro-zone economist for IHS Global Insight. "The jump in unsecured consumer credit in March will likely fuel concern that U.K. growth has been too dependent so far on consumer spending."
Research by the London School of Economics suggests wages won't grow substantially for some time, suggesting debt will grow further in order for consumer spending to continue to rise.
"It is quite clear that the economy is still well below full employment and there is a large amount of slack in the labor market," former Bank of England member David Blanchflower, currently a professor of economics at Dartmouth College in Hannover, N.H., and Stephen Machin, professor of economics at University College London and a member of the Low Pay Commission, said in the LSE research. "We see little evidence of widespread skill shortages, which would push up wages; and public sector pay freezes with continuing redundancies continue to push down on workers' bargaining power."
There are signs, though, that the economy is increasingly being supported by more broad-based activity with a separate survey published Thursday showed that the manufacturing sector gained more ground in April.
Data firm Markit and the Chartered Institute of Purchasing & Supply's monthly purchasing managers index of the manufacturing sector rose to a five month high of 57.3 in April, from 55.8 in March. Economists had forecast the index slipped to 55.0.
A figure above 50 shows the sector is expanding, while below that level means contraction.
"The latest data on the manufacturing sector and household borrowing have provided some further encouraging evidence of a rebalancing of the U.K.'s economic recovery away from excessive dependence on housing and consumers toward industry," said Jonathan Loynes, chief European economist at Capital Economics.
Other figures published Thursday depicted the continued increase in U.K. house prices, although there was some indication that new, tougher mortgage lending rules may stem the continued surge in prices.
U.K. lender Nationwide said that the average price of a home in April, purchased by its own mortgage customers rose 1.2% on the months and 10.9% on the year to a six-and-a-half year high of £183,577. The annual rise was the biggest since June 2007, while the average price was the highest since November 2007 and is now less than £3,000 below the peak in its own series.
"House price growth is outstripping income growth by a wide margin. The risk is that unless supply accelerates significantly, affordability will become stretched," Nationwide's chief economist Robert Gardner said.
The BOE's data, meanwhile, showed the number of new mortgages approved in March fell to 67,135 from 69,592 a month earlier, the lowest level since September and confounding analysts' expectations for a rise to 72,000.
Source: Wall Street Journal
