The key chart
Quarterly US and UK consumer credit flows expressed as a multiple of pre-pandemic average flows (Source: FRED; BoE)
The key message
Have US and UK consumers read the (recession) script?
Despite rising borrowing costs, quarterly consumer credit flows in 1Q23 remained well above pre-pandemic levels, helped by a recovery in monthly flows in March 2023. The message from the US and UK money sectors in 1Q23 was more positive for consumer demand and growth, but more problematic for Chair Powell and Governor Bailey…
US consumer credit totalled $65bn in 1Q23, down from $87bn and $84bn in 4Q22 and 3Q22 respectively but still 1.5x the pre-pandemic average quarterly flow of $45bn (see key chart above). The monthly flow in March 2023 rose to $27bn, from $15bn in February 2023, and was 1.8x the pre-pandemic average flow of $15bn or 1.5x on a 3m MVA basis (see chart below).
UK consumer credit totalled £4.7bn in 1Q23, up from £3.2bn and £3.3bn in $Q22 and 3Q22 respectively, and 1.3x the pre-pandemic average quarterly flow of £3.6bn (see key chart above). The monthly flow in March 2023 rose to £1.6bn, from £1.5bn in February 2023, and was 1.6x the pre-pandemic average of £1.2bn or 1.3x on a 3m MVA basis (see chart below).
Monthly consumer credit flows (3m MVA) expressed as a multiple of pre-pandemic average flows (Source: FRED; BoE)
The Federal Reserve and the Bank of England continue to face delicate balancing acts between reducing inflation (their core mandate) and weaker growth. Higher interest rates are supposed to deter borrowing and hence reduce aggregate demand and inflation. At the same, increased borrowing is one way that households can offset the pressures of falling real incomes.
In this context, the message from the US and UK money sectors in 1Q23 was more positive for consumer demand and growth, but more problematic for Chair Powell and Governor Bailey…
Please note that the summary comments and charts above are abstracts from more detailed research that is available separately.