March 2023 – Page 2 – Chris Mallin Macro Perspectives

The key chart

**Trends in monthly consumer credit flows expressed as a multiple of pre-pandemic averages (x)** (Source: BoE; ECB; CMMP)

The key message

While the UK and euro area (EA) money sectors are sending consistent messages about the slowdown in mortgage demand, their messages about consumer credit demand are contrasting and diverging.

Monthly consumer credit flows recovered in the UK in January 2023, back to their pre-pandemic levels and to their highest level since June 2022. In contrast, they fell and remain depressed in relation to their pre-pandemic levels in the EA.

This matters for two reasons: (1) increased borrowing is one way that households can offset the pressures from falling real incomes and (2) consumer credit is the second most important element of productive COCO-based lending.

More policy challenges for the ECB…

Not so synchronised

UK consumer credit flows

The monthly flow of UK consumer credit increased to £1.6bn in January 2023, from £0.8bn in December 2022. This was the highest net borrowing since June 2022 and was 1.3x the pre-pandemic flow of £1.2bn. The 3m MVA of consumer credit flows increased to £1.2bn in January, from £1.0bn in December, very slightly above the pre-pandemic flow (see chart below).

**Monthly flows of UK consumer credit (£bn)**
(Source: BoE; CMMP)

EA consumer credit flows

In contrast, the monthly flow of EA consumer credit fell to €0.3bn in January, down from €1.5bn in December and only 0.1x the pre-pandemic average flow of €3.4bn. The 3m MVA of consumer credit flows decreased to €1.3bn in January, from €1.7bn in December, 0.4x the pre-pandemic average flow.

Note that consumer credit flows in the EA have failed to recover to their pre-pandemic levels (see chart below).

**Monthly flows of EA consumer credit (EUR bn)**
(Source: ECB; CMMP)

Why this matters

This matters since increased borrowing is one way that UK and EA HHs can offset the pressures from falling disposable incomes (along with reduced savings).

Consumer credit is also the second most important element of productive COCO-based lending, after corporate credit. It supports productive enterprise since it drives demand for goods and services, hence helping corporates to generate sales, profits and wages.