Lending to UK manufacturers slows but consumer credit rises

Posted on November 29, 2016

Bank lending to manufacturers declined 5.2 per cent in October compared with one year ago, according to the latest statistics on money and credit in the UK economy published on Tuesday by the Bank of England.

Manufacturing, which accounts for roughly a tenth of the UK economy, is expected to be one of the most sensitive parts of the economy to the decline in the exchange rate because of the sector’s reliance on imports.

The total volume of lending in the past three months grew at the slowest rate since the summer of 2015, because of a monthly decline of 0.2 per cent in October — this was a £3.2bn decrease in the total amount of lending compared with September.

Consumer lending, however, increased 10.5 per cent compared with October last year and mortgage lending reached the highest level since March. Mortgage approvals rocketed in the first three months of 2016 as buy-to-let landlords rushed to buy new properties before a tax change.

There were 67,500 new mortgages approved in October, beating the forecast consensus of 65,000.

Tuesday’s data adds to a picture of divergence between different sectors of the British economy following the EU referendum vote. Consumers have been mostly unfazed by the result and continued shopping while businesses and financial markets have been more circumspect.

Business and consumer borrowing are being bolstered by the Bank of England’s easy monetary policy as well as new measures introduced in August following the referendum, said Howard Archer, chief UK and European economist at IHS Markit. “Low interest rates are supporting consumer and business borrowing.”

The latest estimate of economic growth, released this month, found that the better than expected growth in the three months following the referendum was because of both consumer spending and business investment remaining strong in the third quarter.

However government statisticians warned that many of the investment decisions would have been taken before the referendum result.

Commenting on the BoE’s money and credit statistics Elizabeth Martins, UK economist with HSBC said, “Credit conditions remain very loose, and there is little sign so far of borrowers, either consumer or corporate, starting to worry about Brexit at this point.”

The European Commission’s monthly survey of economic confidence, also published on Tuesday, found that business sentiment rose back above the pre-Brexit level in October.

It also found that consumer confidence slipped back to levels seen in the immediate aftermath of the referendum, although this data is quite volatile.

Consumer expectations of price increases spiked in October to reach their highest level since 2011, according to the survey.

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