The key chart
The key message
Monthly consumer credit flows in the euro area (EA) and the UK bounced slightly in October 2022 but momentum appears to be weakening. The regions’ money sectors are sending cautious messages about the outlook for consumption and growth.
In the EA, the monthly flow of consumer credit was €2.4bn in October 2022, up from €1.9bn in September 2022. (Note that September was revised down from €4.8bn previously). This flow was only 0.7x the pre-pandemic average of €3.4bn. The 3m MVA of monthly flows was €1.4bn, only 0.4x its pre-pandemic average. Smoothed monthly flows have yet to recover to pre-pandemic levels, confirming that risks to EA economic growth lie in the lack of demand for consumer credit.
In the UK, the monthly flow of consumer credit was £0.8bn in October 2022, up from £0.6bn in September 2022. This flow was only 0.6x the pre-pandemic average of £1.2bn, however. The 3m MVA of monthly flows was £0.9bn, only 0.7x its pre-pandemic average. Last month I suggested that the risks to the UK economic outlook lay in demand for consumer credit stalling. This remains the case.
In the face of falling real disposable incomes, EA and UK households have the option to reduce consumption, reducing their rates and/or stock of savings, and/or borrow more.
Given that excess savings typically accrue to HHs with relatively low marginal propensities to consume, the flow of consumer credit becomes an important indicator in terms of the relative strength of the EA and UK economies and the risks to future growth.
With momentum slowing here, the downside risks are mounting in both regions.
Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.