News Analysis: UK lending figures show continued bias toward mortgage loans
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E-mail Xinhua, November 30, 2013
October credit data released Friday by the Bank of England (BOE) showed net mortgage lending continue to rise, while lending to private non-financial corporations fell, prompting economists to highlight the continued bias towards mortgage lending.
The news came just a day after the BOE moved to refocus its Funding for Lending Scheme (FLS) designed to deliver more liquidity to lending markets to target businesses, moving it away from mortgages.
Net mortgage lending was expected at 1.3 billion pounds (about 2.12 billion U.S. dollars), with a consensus that mortgage approvals had increased to 68,300.
BOE figures showed October net mortgage lending at 1.2 billion pounds, up from 1.1 billion pounds in September, with mortgage approvals at 67,700, the highest level since January, 2008.
Experts had expected the data to be consistent with continued improvement in credit flows, with an expectation of 0.7 billion pounds net consumer credit but this rose only 0.5 billion pounds, less than half the September rise.
Blerina Uruci, UK economist with Barclays Economics Research, said that the BOE's decisoin to remove support for mortgage lending via the FLS was a pre-emptive one.
"Although there has been a strong rise in mortgage approvals this year, they are up by 29.2 percent year on year, net mortgage lending has remained low, which seems consistent with both households and banks ultimately being rather wary of over-extending themselves."
Uruci said the recovery in the housing market should not be seen as a cause for alarm.
"The commitment by the authorities to keep a close eye on lending standards should help ensure that widespread bubble conditions in the housing market do not emerge," she said.
Net lending to non-financial companies fell again in October, by 1.1 billion pounds, following a rare rise of 714 million pounds in September.
Within this lending to small and medium-sized enterprises (SMEs) fell by 505 million pounds in October.
Howard Archer, chief UK and European economist with IHS Global Insight, said that the extension of the FLS by the BOE in April to include small and medium-sized businesses was not having much impact.
"October's relapse in lending is a setback to hopes that banks are now becoming more prepared to lend to businesses amid the improved economic situation and outlook," said Archer.
He added, "It is notable that the BOE is to focus the FLS scheme entirely on lending to businesses following its decision to withdraw FLS support for lending to households from January."
Archer said low bank lending to businesses earlier this year was partly due to low demand for credit from companies against a background of economic uncertainty.
There were signs that firms' desire to borrow is now picking up, with firms looking to pay down debt, and larger firms looking for alternative sources to raise capital.
Archer said, "Firms are now looking to step up their borrowing as markedly improved economic activity in recent months lifts their confidence and need for capital. Significantly, a November survey from EEF indicated that the share of manufacturers with no need to borrow fell to 40 percent, which is the lowest level since the survey began in 2007."
In a separate opinion survey released Friday the GfK consumer confidence index fell slight in November, for the second month running by 1 point to -12.
Uruci said the leveling out in confidence at a sub-par level supports the view that growth in household demand is likely to remain muted.
Uruci said, "Consumer spending is likely to be limited by continued weak growth in disposable incomes. With average earnings growing at around 1 percent and inflation above 2 percent, real average pay continues to fall, and even factoring in growth in employment and non-pay income such as self-employment income and government benefits, real household disposable income growth is weak." (1 pound = 1.63 U.S. dollars) Endi
