Bank of England warns banks about risky lending after borrowing surge

Thrugelmir

About time focus returned to the real world.

A surge in consumer lending means British banks are at risk of incurring losses, the Bank of England said on Tuesday, warning that some might be letting credit standards slide as they compete to offer debt to households.

Consumers ramped up their borrowing by more than 10 percent late last year, the fastest growth in a decade, which helped drive strong economic growth despite June's vote to leave the European Union. Rates of saving fell to their lowest in more than 50 years.

But the economic outlook is now darkening as households face rising living costs in the wake of sterling's tumble against the dollar and the euro, and wage growth is expected to remain below its long-run average.

http://uk.reuters.com/article/us-britain-boe-idUKKBN1761JO

HAMISH_MCTAVISH

This is what was almost entirely responsible for the better than expected economic figures post-Brexit.

An unprecedented increase in consumer debt and the savings rate falling to 50 year lows.

But that ramping up of consumer debt could not last - and it won't last.

Moving forwards the general public will have to deal with rapidly increasing inflation, real terms wage cuts, and increasing economic and employment uncertainty.

The economic pain from the Brexit vote was not averted - only delayed.

Masomnia

If consumer debt is increasing an savings rates are falling then obviously the public at large doesn't share the pessimism.

Not good news really, but not a surprise with interest rates where they are.

System

Masomnia wrote: »

Not good news really, but not a surprise with interest rates where they are.

Exactly. The general public doesn't set interest rates, it's the Bank of England, with their careful management of the economy.
For several years they have in their wisdom decided to set interest rates extraordinarily low in order to penalise saving and encourage spending.
They keep sending the message - Send, Spend, Spend - so what do they expect?

Herzlos

Exactly, what's the point in saving at a rate below inflation?

Filo25

Clifford_Pope wrote: »

Exactly. The general public doesn't set interest rates, it's the Bank of England, with their careful management of the economy.
For several years they have in their wisdom decided to set interest rates extraordinarily low in order to penalise saving and encourage spending.
They keep sending the message - Send, Spend, Spend - so what do they expect?

The problem is that the economy has basically been on monetary policy life support since the global financial crisis, any significant increase in rates would plunge us right back into recession.

I can't see that changing significantly anytime soon either, if we see improving economic performance it would probably make sense to see greater fiscal tightening to address our deficit issues quicker rather than increasing rates.

westernpromise

@ hamish

It's being so cheerful that keeps you going.

I am with Lord King on this. If in 30 or 40 years' time you show people a chart of UK economic performance and ask them to say when we left the EU, they won't be able to.

Conrad

HAMISH_MCTAVISH wrote: »

This is what was almost entirely responsible for the better than expected economic figures post-Brexit.

An unprecedented increase in consumer debt and the savings rate falling to 50 year lows.

But that ramping up of consumer debt could not last - and it won't last.

Moving forwards the general public will have to deal with rapidly increasing inflation, real terms wage cuts, and increasing economic and employment uncertainty.

The economic pain from the Brexit vote was not averted - only delayed.

If only we'd remained and kept ourselves inoculated against inflation, recessions, busts and borrowing binges.

Conrad

Anyone have the figures for total private assets vs total private borrowing?


A ton of people I know (not through work) own more than one property and they sometimes credit binge - say £15k on cards for a holiday as they have seen their other property increasing in value by tens of thousands per annum, not to mention the rental income. Just an anecdote though, even I will admit, lol.


They sort of think its ok to splash out when they consider the long term picture of gains they can reasonably expect.

michaels

Surely the whole point of banking is that you set an interest rate on your lending so that despite some defaults, overall you make a profit. Getting funds is very cehap for banks so even with low lending rates of 3% they can afford a fair few total losses of capital and still make a profit. The economy is cyclical so it would be unreasonable to expect banks to make a profit on their loan book every year, the extra profit in the good years can form a buffer against the losses in the bad years..... ...or that is how banking used to work. Now it seems that any loss is unacceptable as it presents a 'systemic risk'. I guess because eveyone including the banks tries to minimise captial holdings so the profit made in the good years immediately disappears out the door as bonuses or dividends meaning there is no buffer for the lean years so the regulator has to 'regulate' away the lean years.

antrobus

Conrad wrote: »

Anyone have the figures for total private assets vs total private borrowing?...

ONS has numbers on the net worth of 'Households and non-profit institutions serving households'

https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/bulletins/nationalbalancesheet/2016estimates

The households and NPISH sector had an estimated net worth of £10.2 trillion at the end of 2015...The most valuable assets in this sector were dwellings (£5.2 trillion at the end of 2015; 51% of this sector’s net worth), “insurance, pension and standardised guarantee schemes” (£3.7 trillion; 36%) and “currency and deposits” (£1.5 trillion; 14%).