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Lending growth virtually grinds to a halt

The increase in total net lending to individuals in May was £0.6 billion, which was lower than both the April increase of £1.1bn and the six month average of £1.3bn. The twelve-month growth rate also continued to fall. It was 2.6% in February, 2.1% in March, 1.7% in April and only 1.4% in May. These figures were published yesterday by the Bank of England and reflect three months of quantitative easing whereby the Bank has been trying to pump liquidity into the economy. On the face of it, this does not appear to be working as of now but it may take additional time.

 

Within the figures quoted above, net lending secured on dwellings was virtually static, reaching only £0.3 billion, which was down on the £0.9 billion recorded in April and the six month average of £1.1bn. There was also a continued fall in the twelve month growth rate to 1.3%. At the same time, the number of loans approved for house purchase only rose by 223 between April and May.

 

Consumer credit increased by a net £0.3 billion in May which was in line with the six-month average, but the annual growth rate for consumer credit continued to fall to 2.3%.

 

The changes in lending to individuals and lending secured on dwellings can be seen in the two figures below.

 

Source: Bank of England

Source: Bank of England

Source: Bank of England

Source: Bank of England

There was also no sign of an upturn in business lending. There is a key measure which covers lending to private non-financial businesses excluding securitisations and according to the Financial Times this fell by 0.1% in May following a fall of 0.9% in April.

 

One key question is “why is the amount of lending so static?” Is it because banks are unwilling to lend and making it very difficult for individuals and businesses to borrow? Or is it that both individuals and firms are reining in their spending, choosing not to borrow, and waiting for the good times to return? Or, possibly, a bit of both.

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Posted in Bank of England, Lending

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