Another short key message
The UK and EA may be in disharmony over COVID vaccinations, but the messages from their respective money sectors remain far more consistent.
Neither last week’s ECB data release nor today’s (29 March 2021) Bank of England money credit statistics for February 2021 provide support for inflation hawks. Three things need to happen for this to change: (1) a moderation in monthly household (HH) deposit flows; (2) a re-synching of money and credit cycles; and (3) a recovery in consumer credit.
What have we learned today from the UK?
- UK HHs’ flows into deposit-like accounts remained strong in February with a net flow of £17bn. This is below December 2020’s recent peak of £21bn and January’s £19bn but still 3.7x the average monthly flows seen during 2019. HHs continue to maintain large cash holdings despite the fact that the effective interest rate paid on new time deposits fell to a new series low of 0.34%.
- The gap between the growth in money supply (15.2%) and the growth in private sector lending (3.8%) hit a new record of 11.4ppt from 10.6ppt in January. Rather than re-synching, the UK money and credit cycles are moving out-of-synch at an even greater pace.
- UK HHs repaid £1.2bn in consumer credit during February, following repayments of £2.7bn in January and £0.9bn in December. This marks five consecutive months of net repayments of consumer credit bringing the YoY growth rate to another new series low of -9.9% in February.
As in the EA last week, there is no change yet in the subdued message from the UK money sector for inflation hawks. HH uncertainty and liquidity preference remain very elevated, money and credit cycles are de-synchronising at a record rate and consumer credit is also declining at a record rate.
What would Vladimir and Estragon have to say?