Britain’s credit-light recovery continued in August, with a further decline in bank lending to companies and another downturn in the mortgage market.
Official figures from the Bank of England on Monday showed bank lending to non-financial companies, the backbone of corporate Britain, fell 0.6 per cent in August compared with the same month in 2013, the steepest decline since April. The number of mortgages approved dipped to 64,212 from 66,100 in July, a steeper fall than the 65,000 expected in the City.
With households and companies cautious about borrowing amid rapid economic growth, the recovery is not being fuelled by increasing private sector debt. This will please the BoE as it has been concerned about the outstanding stock of borrowing and the danger that low interest rates will encourage a further borrowing binge.
Samuel Tombs of Capital Economics said the data suggested a rapid build-up of private debt was unlikely. “Looking ahead, with consumer confidence still at high levels, firms scaling up investment plans and banks gradually improving the availability of credit, lending should recover at a faster pace over the coming months,” he said.
Households have become more cautious about borrowing since the spring in a further sign that the housing market is slowing. The level of mortgage approvals has been slowly declining since affordability tests were introduced by lenders responding to new regulatory rules. Approvals are significantly higher than the near 50,000 average in the aftermath of the crisis, but still well down on pre-crisis levels.
Overall, the annual rate of mortgage borrowing growth was 1.7 per cent in August, considerably below the rate of growth of cash incomes, so the burden of household debt continues to drift down. This slow deleveraging eases some of the pressure on the central bank to keep interest rates very low in the face of Britain’s rapid growth.
Although almost 90 per cent of household debt is secured on property, consumer credit – borrowing on credit cards, personal loans and car finance – is growing more strongly. Credit card borrowing rose 5 per cent in the year to August with other loans, largely car finance, growing 6.8 per cent.
Companies are even more cautious about bank lending than households. While corporate deposits in banks rose 8.9 per cent, the highest rate since December 2007, borrowing from banks continued to sink. Partly, this is the result of companies seeking alternatives to bank finance.
Within the corporate sector, manufacturers were most keen to increase borrowing with a steady rise to a 4.9 per cent annual rate in August. In contrast, property companies and the transport sector all reduced the outstanding level of their borrowing from banks.