Money and Credit - May 2018

Published on 29 June 2018

Key points

Consumer credit growth continued to slow in May, but remains rapid relative to 2009-12.
The increase in borrowing by businesses in May was the highest since July 2017. Within this bond issuance was particularly strong, driven by mergers and acquisitions (M&A).
Annual growth in bank lending to businesses fell in May, particularly for large firms.
The amount of money held by UK households increased by £6.6 billion in May. This offsets a sharp fall in their money holdings in April.

References in the text point to the summary tables below. For further statistics, please see our Bankstats tables.

Lending to individuals (Tables A-E)

Consumer credit (Tables B and C)

Annual growth of consumer borrowing, excluding mortgages, slowed a little in May to 8.5%. Whilst this growth rate remains elevated, particularly compared to 2009-12, the gradual slowing continues the downward trend in growth since late 2016.¹

The net amount of credit extended to borrowers each month gives us a better picture of recent developments, as the annual growth rate can be a lagging indicator. Although net lending fell slightly on the month, at £1.4 billion, it was in line with the average amount borrowed monthly over the past year (Chart 1). The decrease was driven by a fall in the amount of other loans and advances (which includes personal loans, overdrafts and car finance).

Chart 1: Consumer credit flows

Seasonally adjusted

Mortgage lending (Tables D and E)

The annual growth rate for mortgage lending remained stable at 3.3%, and has now been around 3% since late 2016. Although this is above 2009-13, it remains very modest compared to the pre-crisis period. In value terms, households borrowed an extra £3.9 billion secured against their homes in May, which is slightly higher than the average of the previous six months.

The number of mortgages approved for house purchase increased 2.5% to 65,000 in May. This data gives us an indication of how much new mortgage lending we might expect to see in coming months. The number of approvals for remortgaging also rose by 8% to 51,000, the highest since November 2017.

Lending to businesses (Tables F-I)

Businesses can raise money by borrowing from banks or from financial markets (in the form of bonds, equity and commercial paper). The total amount borrowed by businesses from these sources increased in May by £8.9 billion, similar to the particularly large flow seen in July 2017 (Chart 2).

Chart 2: Net finance raised by private non-financial corporations (PNFCs)

Seasonally adjusted

This strength was driven by an increase in businesses’ net bond issuance to £11 billion in May, the largest net monthly issuance on record. As with the previous peak in July 2017, this month’s increase was driven by a number of large deals related to M&A activity. According to the Bank’s network of Agents, UK-based professional services firms reported an increase in demand for M&A advice from overseas clients.² This suggests upcoming M&A activity may continue to increase businesses’ demand for finance in the future.

Contrasting the strength in bond issuance this month, the annual growth of businesses’ borrowing from banks has slowed to 0.9%, reflecting slowing in lending growth to both large businesses and - to a lesser extent - small and medium enterprises (SMEs) (Chart 3). The annual growth rate of net lending to SMEs was negative for the first time since mid-2015 at -0.1%; the 12-month growth rate of net lending to large businesses ticked down to 1.5%. The latter is partly a mechanical effect as strong flows in May 2017 dropped out of the 12 months in scope, but also reflects recent weakness in net lending. Within lending to large businesses, the public services industry was particularly weak, and has been the main contributor to the volatility in the past three months.

Chart 3: Loans to non-financial businesses

Seasonally adjusted

Broad money (Table J)

The total amount of money held by UK households, businesses and non-intermediary other financial corporations (NIOFCs) (Broad money or M4^ex) increased by £19.6 billion in May. Within this, money held by households increased by £6.6 billion; this follows the weakest flow in at least 20 years in April of -£3.3 billion. Smoothing through the recent volatility by taking a two-month average suggests money has increased broadly in line with its recent average. NIOFC’s money holdings also increased by £9.7 billion.

The drivers of trends in consumer credit, and the associated risks, are discussed in the recent June 2018 Financial Stability Report.
For more information, see the May 2018 Agents’ summary of business conditions.

Summary tables