Quarterly Bulletin
Personal Sector Articles
| Winter 2004 | British
household indebtedness and financial stress: a household-level
picture 
(154k)(by Orla May, Merxe Tudela and Garry Young of the Bank's MacroPrudential Risks Division). This article summarises the main results of a survey carried out for the Bank in September 2004 about household borrowing, housing wealth and attitudes to debt. The survey was designed to provide a comprehensive, up-to-date picture of household indebtedness. It found significant differences between homeowners and renters: renters are more likely to have debt problems, but their share of total household debt is small. The vast majority of debt is owed by homeowners, very few of whom (by historical standards) show signs of having problems at present. While 40% of total outstanding household debt is owed by those spending more than a quarter of their gross income on servicing their debts, the share of debt owed by those currently with debt problems is lower than a decade ago. NMG Research survey questionnaire
(38k) |
| Autumn 2004 | Household
secured debt
(160k) (by Matthew Hancock of the Bank's Monetary Assessment and Strategy Division and Rob Wood of the Bank's Structural Economic Analysis Division). Deteriorating household sector balance sheets were widely thought to have exacerbated the recession in the early 1990s. In recent years households have once more significantly increased their indebtedness; this has been matched in aggregate by an accumulation of financial assets. This article analyses homeowners' financial positions since the late 1980s using disaggregated data, to assess the extent to which debt may exert an important influence on the macroeconomy in the current conjuncture. Housing equity and consumption: insights from the Survey of English Housing
(101k)(by Andrew Benito of the Bank's Structural Economic Analysis Division and John Power of the Bank's Inflation Report and Bulletin Division). This article examines data from the 2003 Survey of English Housing (SEH) in order to shed light on the link between gross equity withdrawal and spending. Our analysis suggests that the bulk of gross withdrawals is not consumed in the near term. Those who sell a property without purchasing another one and those who trade down are more likely to pay off debt or save withdrawn equity than spend the proceeds. Remortgagors and those who obtain further secured advances are likely to spend the equity, but we estimate that their equity constitutes only about a quarter of total gross withdrawals. Of those who spend equity, financing home improvements rather than purchasing consumer goods appears to be the most important use of funds. That is consistent with the relatively weak relationship between consumption and mortgage equity withdrawal recently observed in aggregate data. |
| Summer 2004 | The
economics of retail banking-an empirical analysis of the
UK market for personal current accounts
(97k) (by Céline Gondat-Larralde and Erlend Nier of the Bank's Financial Industry and Regulation Division). Understanding the economics of retail banking is important for the Bank of England in carrying out both its monetary stability and its financial stability function. In this article, we study the dynamics of the UK market for personal current accounts between 1996 and 2001. Analysing the evolution of banks' market shares and their pricing strategies, two questions are addressed: (i) Do bank market shares respond to price differentials? (ii) If not, why not? Our results point to customer switching costs as a key determinant of the nature of competition in the market for personal current accounts during the 1996 - 2001 period. They are thus broadly supportive of a number of initiatives that have since been undertaken to reduce such costs. |
| Spring 2004 | Durable
spending, relative prices and consumption
(122k) (by John Power of the Bank's Structural Economic Analysis Division). In real terms, the growth of durable spending has substantially outpaced that of spending on other goods and services since the mid-1990s. But that gap largely reflects the effects of falling relative prices: nominal spending on durables and on non-durables has grown at similar rates during that period. This article uses a simple framework to assess the behaviour of the real and nominal ratio of durables to non-durable spending in the long run. It also considers the current position of the ratios in more detail and provides some assessment of how we might expect them to have evolved given prevailing cyclical factors. |
| Winter 2003 | The
distribution of unsecured debt in the United Kingdom: survey
evidence
(116k) (by Merxe Tudela and Garry Young of the Bank's Domestic Finance Division). The Bank recently commissioned a survey asking people about their unsecured borrowing and whether it is a burden to them. This article summarises the main results. As of October, 34% of respondents had some form of unsecured debt, over and above that which they expected to pay off at the end of the month, and the average amount owed was around £3,500. Some people owed much more than the average: 26% of those with some debt owed more than £5,000. Around 10% of borrowers said that their unsecured debt was a heavy burden to their households, similar to earlier surveys. For purposes of comparison over time, the questions were based on those used in earlier surveys. The evidence suggests that the proportion of people with some debt has not changed since at least the late 1980s. While the average amount borrowed by debtors has increased, since 2000 the extra borrowing has been concentrated among those with household incomes above £17,500. Despite the rise in average debt levels in recent years, the proportion of people who consider their debt not to be a burden has increased. But, the amount borrowed and the share of unsecured debt accounted for by those who consider it a heavy burden have both increased. |
| Autumn 2003 | Trends
in households' aggregate secured debt
(100k) (by Rob Hamilton of the Bank's Structural Economic Analysis Division). The aggregate level of households' secured debt relative to their income has increased by about a quarter over the past five years, and has almost tripled since 1980. Using a simple model, this article concludes that much of this increase can be accounted for by the spread of homeownership and the fall in inflation (which has reduced the rate at which households' real debt burden is eroded over time). However, the model is unable to account for the full extent of the recent increase in secured borrowing growth. The model also suggests that, because only a relatively small fraction of the housing stock changes hands each year, the aggregate level of debt responds relatively slowly to changes in house prices. So the recent increases in house prices could lead to continuing increases in the debt to income ratio over the next five to ten years. |
| Winter 2002 | Financial
pressures in the UK household sector: evidence from the
British Household Panel Survey
(85k) (by Pru Cox, John Whitley and Peter Brierley of the Bank's Domestic Finance Division). Household indebtedness has risen rapidly in relation to incomes in recent years. But aggregate data cannot indicate which types of households-by age, income or wealth-have accumulated the most debts. This article uses information from the latest British Household Panel Survey (for the year 2000) to provide some evidence on that issue. The survey suggests that debt-to-income ratios vary widely across households. The youngest and lowest - income households increased their debt-to-income ratios by most-and from the highest levels - between 1995 and 2000. But the households with the highest absolute levels of debts tended also to have the highest incomes and net wealth in both years. A large proportion of this wealth was held in housing assets. Such households did not, however, hold substantially more liquid assets than less indebted households. Although households were relatively sanguine about their higher levels of debt, that confidence could be eroded if circumstances deteriorated. Overall, changes in the distribution of household debt in recent years suggest that the household sector may be somewhat more vulnerable to an adverse shock than the aggregate measures indicate. |
| Autumn 2002 | Money
and credit in an inflation-targeting regime
(85k) (by Andrew Hauser and Andrew Brigden of the Bank's Monetary Assessment and Strategy Division). This article is one of a series on the UK monetary policy process. It discusses how the assessment of money and credit data fits into the Bank's quarterly forecast round. Monetary statistics are available more rapidly than most other economic data and provide early information on the near-term economic outlook. The analysis on money and credit might be used to adjust some output of the Bank's macroeconometric model. It could also help the MPC to assess the risks around its central projections, reflected in the inflation and GDP fan charts. |
| May 2000 | Money,
lending and spending: a study of the UK non-financial corporate
sector and households
(64k) (by Andrew Brigden of the Bank's Stuctural Economic Analysis Division, Alec Chrystal of the Bank's Monetary Assessment and Strategy Division and Paul Mizen, consultant to the Bank's Monetary Assessment and Stategy Division). Many empirical studies over the past three decades or so have reported estimates of the determinants of consumption, investment and the demand for money. This article summarises recent Bank work that seeks to understand more fully the demand for bank and building society loans, and the interactions between these borrowings and the demand for money and decisions to consume and invest. This work aims to enhance our understanding of the links between the monetary sector and real spending decisions. The main aim of this article is to assess whether the data on bank and building society lending to private non-financial corporations (PNFCs) and households contain information that could improve our understanding of the links between monetary policy and aggregate demand. The article demonstrates that it is possible to estimate relationships that explain lending to firms and households, and that lending is driven by the same factors that drive the more intensively researched categories of money demand, consumption and investment. The results have improved our understanding of the links between money and credit and the spending decisions of households and firms. There do appear to be significant interactions between lending to firms and households, and money, consumption and investment. The estimated system of equations potentially gives a framework that helps us to interpret the likely impact of observed credit growth on future spending. These estimates are tentative and require further empirical verification. Notwithstanding these reservations, channels that involve credit as well as money balances appear to matter for the transmission mechanism of monetary policy. |
| August 1998 |
The UK personal and corporate sectors during the 1980s
and 1990s: a comparison of key financial indicators ICCs’ capital gearing has been above the level of the mid 1980s throughout the current recovery, but so far has shown no signs of the kind of deterioration that occurred after 1987. Similarly, the stock of personal sector debt began this recovery at a higher level than in the early 1980s but, unlike then, has grown no faster than incomes and slower than wealth so far during the 1990s. There are other contrasts between the 1980s and 1990s recoveries. With regard to lending flows, in the 1980s boom, there was a channelling of funds to ICCs and personal housing loans. But in the current recovery, lending has been channelled more towards unsecured consumer credit and to OFIs. With regard to asset prices, in the 1980s, property and equity prices rose markedly in tandem. Although equity prices have again risen strongly in the 1990s, property prices have so far risen slowly in comparison. During the 1980s, the spread of bank and building society mortgage rates over base rate fell only towards the end of the boom and only as a result of a delayed response to the increase in official rates. In contrast, since the early 1990s, lending spreads in the mortgage market have fallen, as they appear to have done in other main lending markets. This may have contributed to the growth in lending during this recovery, but does not necessarily imply an increase in financial risk, so long as the financial status of borrowers has improved. The evolution of the financial position of the personal sector during the 1980s probably reflected a steady response to financial liberalisation from a starting position of sub-optimal debt levels - total personal debt rose much more rapidly than incomes, and at least in line with the rapid growth in personal wealth. Although consumer credit has increased at least as much relative to incomes during the current upswing as in the previous one, it now still accounts for only around one eighth of personal sector debt. As noted above, the relatively slow growth in lending for house purchase so far during this upswing has meant that the personal sector debt/income ratio has remained flat, while the debt/wealth ratio has fallen. This suggests that the upward adjustments in personal sector debt levels that followed the 1980s liberalisation may have been completed before the current recovery. |
| February 1997 | Increasingly weightless economies (55k)
(by Danny T Quah, Centre for Economic Performance, the London School of Economics). This article is one of an occasional series provided by academics working outside the Bank of England. The views expressed reflect those of the author rather than those of the Bank of England. Danny T Quah examines how, when an economy grows, its patterns of production and consumption systematically change. He describes one such large-scale evolution, namely, the increasing weightlessness of aggregate output across advanced economies. In all fast-growing successful countries, growth in information technology has contributed positively both to increasing weightlessness and to economic growth. In the sample of countries studied here, the richer the country the higher the contribution to growth of information technology and services; in no country has manufacturing, as traditionally construed, continued to be as important. |
| November 1996 | The demand for Divisia money by the personal sector and by industrial and commercial companies (44k) (by Norbert Janssen of the Bank's Monetary Assessment and Strategy Division). This article updates previous Bank analysis of Divisia money. It assesses the demand for Divisia money by the personal sector and by industrial and commercial companies (ICCs). Divisia money weights the component assets of M4 according to an estimate of the transactions services they provide. As an index of total liquidity in the economy Divisia might therefore be more closely related to spending than simple-sum monetary aggregates. The article concludes that a sectoral analysis of Divisia money can contain important information about future spending. |
| February 1996 | Saving, investment and real interest rates (70k) (by Nigel Jenkinson of the Bank's Structural Economic Analysis Division). The G10 finance ministries and central banks published, in October 1995, a report of a study of savings, investment and real interest rates. This report describes the study's conclusions and policy recommendations. It also outlines the Bank of England's work supporting the study. |
| August 1995 | The housing market and the economy (69k) (by Joanne Cutler of Structural Economic Analysis Division) summarises the recent historical trends in the UK housing market, and looks at the links between housing and the wider economy in recent years. It also considers how the relationship might be affected by an environment of sustained low inflation. |
| November 1994 | Regional differences and their importance for the UK
economy (59k) (by Andy Murfin and Kieren Wright of the Bank's Structural Economic Analysis Division) looks at longer-term trends in the performance of the UK regions and at the short-term outlook. Analysis of the last 20 years reveals that differences in regions' average income per head have in general been persistent, and that the range of regional growth rates tends to widen in a recession. Labour mobility between regions seems relatively low. Over the shorter term, the recovery at present seems well-balanced among the regions. |
| May 1994 | Personal and corporate sector debt (106k) (by Jennifer Smith and Gabriel Sterne of Economics Division, and Michael Devereux) analyses the influence of debt on the behaviour of firms and households in the recent recession. As well as comparing their levels of debt, it looks at each sector in detail. By supplementing the available sectoral information with an analysis of disaggregated data, it seeks to develop a more accurate picture of the influence of debt on consumer and corporate behaviour. |
| February 1994 |
The determination of M0 and M4 (by Francis Breedon and Paul Fisher of Economics Division) summarises recent Bank research on M0 and M4. The research confirms the leading indicator properties of M0, and in explaining M4's behaviour, underlines the importance of the role of wealth and of a sectoral approach. It also suggests that there may be benefits in the simultaneous estimation of equations for consumption and personal sector M4 holdings. Fixed and floating-rate finance in the United Kingdom and abroad (by David Miles of the Bank's Economics Division) analyses the different risks associated with fixed and floating-rate debt contracts, and how the importance of those risks varies depending on whether the borrower is a firm or a household. It examines the current borrowing structure of the UK personal and corporate sectors, comparing this with other countries; and discusses the consequences for the monetary transmission mechanism of a change in the debt structure. |
