Forex »

Contraction in British Credit

Finances
Share on StockTwits
Published on
www.finances.com

Three big numbers around lending and credit are just out in the UK this morning. Mortgage Approvals for February are down significantly on last month at 70.309K, the anticipated number was 75.25k against a January reading of 76.95k. Consumer Credit also disappointed and has come lower at £0.552N versus the prior months figure of £0.66B and a consensus estimate number of £0.70B. Finally on the positive front the Net Lending to Individuals number rose to £2.3B from £2.1B.

On aggregate today’s figures point to a gradual slowing in the growth rate of British economy activity. Although these figures are important indicators there is plenty of scope within the robust UK economy to bear slight credit contractions from time to time. However more evidence is needed here before any attempt is made to confirm a slowdown.

The British economy is generally considered to be in good health and right now it needs to be. There is a long road left in this recovery but most of the UK’s vital signs are good. Unemployment is somewhat high at 7.2% but moving rapidly in the right direction, inflation at 1.7% is in check and growth for 2014 looks on track for 2.7%.

The problem facing the UK in the long term is the fact that the Current Account Deficit is at record levels. Unless the UK government takes more dramatic steps to reduce this the national debt will continue to rise, it is already at 88.7% of GDP so the scope for it move higher without detrimentally impacting future economic growth is limited.

The unfortunate thing for the British economy is that any fiscal rectitude introduced by the Government will have an effect on current growth. The Bank of England has little scope to compensate on the Monetary policy side, particularly with the current inflation level. Current metrics would suggest that the situation is manageable, but it is a very fine line to be walked by the authorities.

Share on StockTwits