UK consumers tighten belts ... but not manufacturers

The Money and Credit Report for July has been released. Manufacturers appear to be signaling a boost to investment following an upsurge in the number of loans by non-financial corporations.

Borrowing in the UK decreased in July
Consumer credit in the UK grew at its slowest pace for more than a year in July, although annual growth remained at almost 10 per cent, according to figures from the Bank of England.

Signs showing that manufacturers are looking to invest

With household finances under increasing pressure, the bank’s Money and Credit Report found consumer credit increasing at 9.8 per cent, its lowest figure since April last year. The amount borrowed stood at £1.179 billion, down from £1.351 billion in June and well below economists’ expectations of £1.5 billion.At the same time, while lending to SMEs dropped slightly in July, loans to non-financial corporations surged to £8.9 billion, mainly as a result of a “large increase” of lending to British manufacturers, which equated to almost a third.Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said, “The £8.9 billion increase in private non-financial corporations’ borrowing from all sources in July – the biggest rise in three years – is the most eye-catching figure in the latest money and credit release.“The surge in corporate borrowing, which follows June’s similarly-hefty £8.7 billion increase, could be a sign that firms are about to invest more.“This interpretation, however, jars with the recent decline in business confidence and the still subdued levels of surveys of investment intentions. It’s more plausible, then, that the surge in corporate borrowing reflects firms fearing higher interest rates and locking in low borrowing costs.”

Mortgage approvals remain positive

The bank also said mortgage approvals in July had been “stronger than recent months”, standing at 68,689, while approvals for re-mortgaging were also stronger at 46,231 over the month.Jonathan Samuels, chief executive of the property lender, Octane Capital, commented, “This latest report from Threadneedle Street underlines the continued resilience of the UK property market. It’s by no means firing on all cylinders but, equally, the property market has not fallen flat on its face.“Transaction levels are down and the market has without doubt cooled, but there is still demand. A combination of ultra-competitive mortgage rates and high employment levels is injecting a degree of fluidity into the property market. It’s keeping it alive.“Rising inflation has the potential to weaken demand, as people increasingly feel the pinch and the economy is hardly on a firm economic footing given the uncertainty surrounding Brexit.“To protect themselves against rising living costs, and the threat of interest rate hikes, many households are clearly choosing to remortgage. With mortgage rates as low as they are, it’s no surprise.”
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Alastair McKee, managing director of broker One 77 Mortgages, added, “There’s life in the old dog yet as canny home-owners continue to lock in cheap deals while they can before the spectre of interest rate rises looms.“What is encouraging is that new mortgage approvals are not tailing off but putting in a surprisingly upbeat performance in the face of some pretty intimidating headwinds.“Don’t forget that annual UK house market growth has more than halved in a year, transaction levels have been dropping, business investment is down and retail sales growth slowed at the fastest pace in over a year last month.“Borrowers don’t seem to be paying any of that much attention and first-time buyers could be driving a lot of this traction. They won’t want to miss the party and will be keen to take advantage of low rates themselves.“However, new approvals are unlikely to be to blame for swollen stamp duty receipts confirmed this week. In fact that’s more likely to be explained to some degree by the stamp duty surcharge on second homes.”For related news and features, visit our Enterprise section.Access hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory  Get access to our free Global Mobility Toolkit

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