The key chart
(Source: BoE; CMMP)
The key message
The outstanding stock of sterling lending to private sector companies (NFCs) in the UK was £455bn at the end of January 2023. This is £61bn or 12% below the peak of NFC lending back in August 2008.
Does the lack of growth in UK corporate lending since 2008 matter, and if so, why?
NFC lending represents the largest segment of productive “COCO-based lending” i.e. lending that supports both production and income formation. Note that while an increase in NFC lending increases the level of debt in the economy, it also increases the income required to finance it.
Back in July 2015, the UK government argued that the financial services sector, “is critical for supporting the rest of the economy, allocating resources and facilitating long term productive investment.” Fast-forward 90 months, and only 17 pence in every pound lent in the UK supports NFCs is generating sales revenues, wages, profits and economic expansion, however. (This contrasts with 39 cents in every euro lent in the euro area.)
Rather that supporting production and income formation, UK lending has become increasingly skewed towards supporting capital gains largely through higher asset prices (78% of total lending). Mortgages alone account for 53p in every pound lent in the UK, for example.
This is an important part of the context for the Chancellor’s Budget on 15 March 2023. In considering options for stimulating growth in the UK economy, Jeremy Hunt, might ponder the question, “what is the purpose of UK banking?”
Proposals that stimulate investment and encourage a shift back towards more productive forms of bank lending would be welcome.
Please note that the short summary comments and chart above are abstracts from more detailed analysis that is available separately.