Money and Credit - July 2020

Our monthly Money and Credit statistical release is made up of three parts: broad money and credit, lending to individual and lending to businesses.
Published on 01 September 2020

Overview

These monthly statistics on the amount of, and interest rates on, borrowing and deposits by households and businesses are used by the Bank’s policy committees to understand economic trends and developments in the banking system.

Key points

  • UK households and businesses continued strongly increasing their sterling money holdings in July (£26.3 billion), albeit by a bit less than on average since March, but stronger than in June (£16.8 billion). Deposit interest rates are at historically low levels.
  • Household’s net borrowing was £3.9 billion in July, with increases in both mortgage borrowing and consumer credit.
  • Household’s consumer credit borrowing increased £1.2 billion July, following four months of net repayments. The interest rate on new consumer credit borrowing increased 22 basis points to 4.64% in July, while rates on interest-charging overdrafts increased 1.6 percentage points to 14.84%.
  • Net mortgage borrowing was £2.7 billion in July, while approvals for mortgages for house purchase increased to 66,300. Approvals remained below February’s pre-Covid level of 73,700. Effective mortgage interest rates were broadly unchanged.
  • Corporates borrowed £3.1 billion from capital markets in July but repaid £3.0 billion of bank loans. Continued strength in borrowing from banks by small and medium sized businesses (SMEs) was more than offset by repayments by large businesses.

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

Headline money and lending (M&C Table J)

Private sector companies and households continued increasing deposits with banks at a fast pace in July. Sterling money (known as M4ex) rose by £26.3 billion in July, more than in June (£16.8 billion), but less than average monthly increase of £53.4 billion between March and May. The increase in July is strong relative to the £9.4 billion average of the six months to February 2020.

Net household borrowing recovered further in July, and PNFCs continued raising debt from financial markets while repaying bank loans. Households borrowed an extra £3.9 billion of loans in July, following borrowing of £2.0 billion in June and average repayments of £4.9 billion between April and May. The weakness in household net borrowing since March has meant borrowing from January to July was just £7.7 billion in 2020, compared with £35.2 billion in the same period of 2019. Corporates raised a total of £3.1 billion of debt from financial markets in July while repaying £3.0 billion of loans from banks.

Chart 1: Broad money by sector

Seasonally adjusted

Lending to individuals

Consumer credit (M&C Tables B and C):

Net consumer credit borrowing was positive in July, following four months of net repayments (Chart 2). An additional £1.2 billion of consumer credit was borrowed in July, around the average of £1.1 billion per month in the 18 months to February 2020. Net repayments totalled £15.9 billion between March and June. That recent weakness meant the annual growth rate remained negative at -3.6%, similar to June and it remains the weakest since the series began in 1994.

While net consumer credit borrowing has returned to around its pre-Covid level, gross borrowing and repayments remain lower. Gross borrowing was £20.7 billion, up from £17.5 billion in June but around 20% lower than the monthly average of £25.5 billion in the six months to February 2020. Repayments of consumer borrowing increased a little on the month, to £19.5 billion from £18.2 billion in June. As in June, repayments remain around 20% below the pre-Covid level.

A recovery in net lending, but somewhat weaker gross lending and repayments can also be seen in the components of consumer credit. Net borrowing on credit cards was £0.6 billion, and other forms of consumer credit also rose £0.6 billion in July. The annual growth rates both remained negative, at -10.6% and -0.3% respectively.

The ‘effective’ rate – the actual interest rate paid – on new personal loans to individuals increased in July, by 22 basis points to 4.64%. This compares to an interest rate of around 7% in early 2020. The cost of credit card borrowing was unchanged at 17.94% in July, remaining at the lowest rate since the series began in 2016. Rates on interest-charging overdraft rose by 1.6 percentage points to 14.84% in July. Between April and June, overdraft rates have been revised up by around 5 percentage points due to changes in underlying data.

Chart 2: Consumer credit

Seasonally adjusted

Mortgage lending (M&C Tables D and E):

The mortgage market showed more signs of recovery in July, but remained weak in comparison to pre-Covid. On net, households borrowed an additional £2.7 billion secured on their homes. This was higher than the £2.4 billion in June but below the average of £4.2 billion in the six months to February 2020. The increase on the month reflected a slight increase in gross borrowing to £17.4 billion in July, below the pre-Covid February level of £23.7 billion and consistent with the recent weakness in mortgage approvals.

The number of mortgages approvals for house purchase continued recovering in July, reaching 66,300, up from 39,900 in June. Approvals are now 10% below the February level of 73,700 (Chart 3), but more than seven times higher than the trough of 9,300 in May. Approvals for remortgage (which capture remortgaging with a different lender) are little changed compared to June, at 36,000. They remain 30% lower than in February.

Chart 3: Mortgage approvals

Seasonally adjusted

The effective rates on new and outstanding mortgages were little changed in July. New mortgage rates were 1.73%, a decrease of 4 basis points on the month, while the interest rate on the stock of mortgage loans fell 1 basis point to 2.15% in July.

Households’ deposits (M&C Table J):

Households’ deposits increased by £7.0 billion in July, down from an increase of £11.7 billion in June, and an average £19.1 billion between March and May. This remains slightly stronger than pre-Covid: in the six months to February 2020 household deposits rose by an average of £5.0 billion per month. The increase in July can be accounted for by deposits in instant access accounts.

The interest rates paid on individuals’ deposits fell further in July. The effective interest rate on new time deposits fell 17 basis points to a new series low of 0.56%, 48 basis points lower than in February. The effective rate on the outstanding stock of time deposits fell 4 basis points to 0.60%. The rate on the stock of sight deposits fell 5 basis points to 0.21%, the lowest since the series began in 2016, and 25 basis points lower than in February.

Lending to and deposits from businesses

UK private sector businesses borrowed a total of £3.1 billion from financial markets in July and repaid £3.0 billion of bank loans. This was the smallest amount raised since early 2020, and between March and June businesses raised an average of £19.2 billion per month. Borrowing from banks by small and medium sized companies (SMEs) remained strong, but this was more than offset by repayments of loans by larger companies.

Chart 4: Net financed raised by PNFCs1

Seasonally adjusted

Footnotes

1There is a discrepancy between the total of net finance raised and its components due to the seasonal adjustment methodology

Market Finance (M&C Table F):

In July, firms raised £3.1 billion from financial markets, on net, lower than the £10.2 billion raised in June, but slightly above the average of the six months to February 2020 of £1.6 billion. The increase in July was driven by net issuance of bonds, which increased £2.2 billion and equity, which increased £1.2 billion. Net commercial paper issuance was close to zero.

Businesses borrowing from banks (M&C Tables F-I):

Overall, corporates repaid £3.0 billion of loans in July. Net borrowing by small and medium sized businesses (SMEs) was more than offset by net repayments by large businesses. The average cost of borrowing from banks by PNFCs of all sizes increased in July. The effective interest rate paid on new borrowing by PNFCs increased to 1.74%, 40 basis points higher than in June. Notwithstanding the increase in July, rates were 82 basis points lower than in February 2020.

Small and medium sized businesses continued borrowing a historically large amount from banks. In July they drew down an extra £5.3 billion in loans, on net. While weaker than in May (£18.0 billion) and June (£10.2 billion), net borrowing was strong relative to the past. Before May, the largest amount of net borrowing by SMEs was £0.6 billion, in September 2016. The strong flows in recent months meant that the annual growth rate rose further, to 20.7%, the strongest on record (Chart 5). Interest rates on new loans to SMEs remain low, although did increase on the month. The effective rate on their new borrowing was 47 basis points higher at 1.65%, compared with a rate of 3.44% in February.

Large non-financial businesses, in contrast, repaid loans in July. The net repayment, of £7.7 billion, followed net repayments of £13.0 billion in May and £16.8 billion in June. In July there were large repayments from the real estate, manufacturing, and wholesale and retail trade industries in particular. The annual growth rate of borrowing by all large businesses fell to 3.7%.

Chart 5: Annual growth of lending to SMEs and large businesses

Seasonally adjusted

Businesses deposits with banks (M&C Tables F-I):

UK businesses’ deposits in all currencies rose by £7.5 billion in July, below the average increase between March and June of £28.8 billion. Deposits remained significantly higher than the monthly average of -£0.4 billion withdrawals in the six months to February 2020. The effective rates on new time deposits for PNFCs increased 1 basis point to 0.18% in July, while the rate on stock sight deposits fell 4 basis points to 0.09%.

Queries

If you have any comments or queries about this release please email dsd_ms@bankofengland.co.uk.

Next release date: 29 September 2020

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