In past years the Bulletin has contained an annual article describing the financial flows between the various sectors of the economy in the most recent year for which data have been available. The present article discusses developments in 1989 and the first three quarters of 1990. Notwithstanding the problems in measuring financial behaviour, a number of important developments are highlighted:
- The personal sector moved from a record financial deficit in 1988 to a surplus in 1990. Slower growth in personal wealth resulted in a slowdown in the growth of consumers' expenditure and a rise in the saving ratio. Borrowing from banks and building societies fell sharply.
- With continuing strong investment and dividend growth, the financial deficit of industrial and commercial companies (ICCs) reached unprecedented levels in 1989. Continued rises in allocations appear to have resulted in a widening of the deficit last year despite a cutback in investment expenditure and destocking in the third quarter. However, with declining expenditure on both takeover activity and investment abroad, the sector's borrowing requirement, and particularly borrowing from banks, fell sharply last year.
- Financial institutions, other than banks and building societies, reduced their gilt holdings as the market contracted. Instead they invested overseas and, particularly, in relatively high yielding domestic liquid assets.