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.
- UK households and businesses continued to increase their deposits in banks and building societies in May. Sterling money held by households, non-financial businesses, and financial businesses rose by £52.0 billion, following large increases in March and April.
- Corporates borrowed an extra £7.4 billion from banks in May, as well as raising £3.5 billion from financial markets. The borrowing from banks was more than accounted for by a sharp increase in borrowing by SMEs of £18.2 billion, with large businesses repaying £12.9 billion of loans.
- The cost of PNFC’s new borrowing fell in May, with effective rates falling by 1.2 percentage points to 1.05%. Within this, rates for SMEs fell by more, by 1.5 percentage points to 0.98%.
- Households repaid more loans from banks than they took out. A £4.6 billion net repayment of consumer credit more than offset a small increase in mortgage borrowing. Approvals for mortgages for house purchase fell further in May to 9,300.
- The interest rate paid by households on new secured borrowing was little changed in May, while the cost of new consumer credit fell to 5.10%, nearly 2 percentage points lower than at the start of 2020.
Headline money and lending (M&C Table J)
The amount of additional money deposited in banks and building societies by private sector companies and households rose strongly again in May (Chart 1). These additional sterling deposit ‘flows’ by households, private non-financial businesses (PNFCs) and financial businesses (NIOFCs), known as M4ex, rose by £52.0 billion in May. This followed large increases in March and April, of £67.3 billion and £37.8 billion respectively. The increase was driven by households and PNFCs, and continued to be strong relative to recent history: in the six months to February 2020, the average monthly increase was £9.3 billion.
Households continued to repay loans while PNFCs increased their overall debt levels. Households repaid £3.4 billion of debt in May having repaid £7.4 billion in April. Corporates raised a total of £11.4 billion of debt in May, primarily from banks but also from financial markets. That followed unusually strong finance raised of £14.0 billion in April and £31.8 billion in March.
Chart 1: Broad money by sector
Lending to and deposits from businesses
Businesses borrowing from banks (M&C Tables F-I):
UK private sector businesses borrowed a total of £11.4 billion from banks and financial markets in May, following strong borrowing in March (£31.8 billion) and April (£14.0 billion) (Chart 2). In May, the strength in borrowing was driven by borrowing from banks by small and medium sized businesses. That contrasts to March, when the strength was concentrated in large businesses’ borrowing from banks, and April, when there was strong capital market issuance.
Chart 2: Net financed raised by PNFCs1
1. There is a discrepancy between the total of net finance raised and its components due to the seasonal adjustment methodology.
Small and medium sized businesses drew down an extra £18.2 billion in loans from banks, on net, as their new borrowing increased sharply. Before May, the largest amount of net borrowing by SMEs was £589 million, in September 2016. The strong flow in May led to a sharp increase in the annual growth rate, to 11.8% (Chart 3). This increase is likely to reflect businesses drawing down loans arranged through government-supported schemes such as the Bounce Back Loan Scheme. Loans taken out through these schemes also reduced the interest rate paid by SMEs on new borrowing. The actual ‘effective’ rate on their new loans fell by 1.5 percentage points in May, to 0.98%. This is the lowest rate paid by SMEs since at least 2016, when the series began, and compares with a 3.44% interest rate on new borrowing in February.
Large non-financial businesses, in contrast, repaid £12.9 billion of loans in May following strong borrowing in March and April. Around half of the net repayment in May was from the public administration and defence industry, which saw strong borrowing in April. The manufacturing, and wholesale and retail trade industries also made large net repayments. This was the highest net repayment from large businesses since the series began in 2011, and the weakening reflected both a fall in gross lending, and an increase in repayments on the month. The annual growth rate of borrowing by large businesses fell to 10.8%, but - given strong borrowing in March and April – it remained much stronger than the growth rate of around 5% in late 2019.
The average cost of borrowing from banks by PNFCs of all sizes fell sharply in May to record lows. The effective, interest rate paid on new borrowing by PNFCs fell to 1.05%, 1.2 percentage points lower than in April, and 1.5 percentage points lower than in February 2020.
Chart 3: Annual growth of lending to SMEs and large businesses
Market Finance (M&C Table F):
Businesses can also raise funds from financial markets (via instruments such as bonds and commercial paper, or with equity). In May, firms raised £3.5 billion from financial markets, on net. This was down from £16.1 billion in April, but above the average of the six months to February 2020 of £1.6 billion. The increase in May was driven by strong net issuance of equity, which increased £4.7 billion, the strongest since June 2009.
Businesses deposits with banks (M&C Tables F-I):
UK businesses’ deposits in all currencies rose by £33.4 billion in May. This large rise by historical standards was broadly in line with the £28.3 billion increase in April and £34.2 billion rise in March. In the six months to February 2020, corporate deposits rose by an average of £41 million per month. The effective rates on new time deposits for PNFCs fell 10 basis points to 0.27% in May.
Lending to individuals
Consumer credit (M&C Tables B and C):
Household’s consumer credit borrowing remained lower than usual in May, as Covid-19 continued weighing on spending. On net, people repaid £4.6 billion of consumer credit in May following repayments of £7.4 billion in April and £3.8 billion in March (Chart 4). There were repayments on both credit card lending (£1.8 billion) and other forms of consumer credit (£2.8 billion). The net repayments of consumer credit compare with additional borrowing of around £1.0 billion per month in the 18 months to February 2020.
In May, the smaller net repayment compared to April reflected a small increase in gross borrowing and lower total repayments. New gross borrowing was £13.6 billion, up from £11.8 billion in April, but still significantly below the average of the six months to February 2020, of £25.5 billion. Repayments on consumer borrowing fell to £17.7 billion in May, from £19.9 billion in April.
The extremely weak net flows of consumer credit meant that the annual growth rate was -3.0%, the weakest since the series began in 1994. Within this, the annual growth rate of credit card lending was negative for the third month running, falling to -10.7%, compared with 3.5% in February. Growth in other loans and advances remained positive, at 0.7%. But this was also weak relative to the recent past: in February, the growth rate was 6.8%.
Effective rates on new personal loans to individuals fell 34 basis points to 5.10% in May. This was the lowest since the series began in 2016, and compares to a rate of around 7% at the start of 2020. The cost of credit card borrowing also ticked down, from 18.54% in April to 18.36% in May.
Chart 4: Consumer credit
Mortgage lending (M&C Tables D and E):
The mortgage market remained weak in May in comparison to pre-Covid. On net, households borrowed an additional £1.2 billion secured on their homes. This was slightly higher than the £0.0 billion in April but weak compared to an average of £4.1 billion in the six months to February 2020. The increase on the month reflected more new borrowing by households, rather than lower repayments.
In contrast to the increase in mortgage borrowing, approvals – a more forward looking indicator – fell back further, pointing to continued mortgage market weakness. The number of mortgage approvals for house purchase fell to a new series low in May, of 9,300 (Chart 5). This was, almost 90% below the February level (Chart 5) and around a third of their trough during the financial crisis in 2008. Approvals for remortgage (which include remortgaging with a different lender only) have also fallen, to 30,400; this fall was a little less sharp and they are 42% lower than in February.
Chart 5: Mortgage approvals
The interest rates on new mortgages were little changed in May. The effective interest rate paid on the stock of fixed-rate mortgages, which account for the majority of outstanding lending, were also little changed. Rates on outstanding floating-rate mortgages fell by a further 14 basis points on the month to 2.25%. The effective rate on the stock of outstanding floating-rate mortgages is now 71 basis points lower than in February, and the lowest since this series began in 2016.
Households’ deposits (M&C Table J):
Households’ deposits increased by a record £25.6 billion in May, following strong increases in March (£14.3 billion) and April (£16.7 billion). In the six months to February 2020, household deposits rose by an average of £5.0 billion per month. The increase in May was primarily driven by deposits in instant access accounts. £12.3 billion of the increase was in interest-earning accounts; non-interest earning deposits rose by £9.1 billion.
The interest rate paid on individuals’ deposits fell in May. The effective interest rate on new time deposits fell 11 basis points to 0.87%, while the effective rate on outstanding sight deposits fell 12 basis points to 0.29%, the lowest since the series began in 2016.
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Next release date: 29 July 2020