Latest lending figures are worse than expected, says ITEM Club – consumer squeeze is set to continue

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s lending figures:

  • Lending figures worse than expected
  • Fall in secured lending, coupled with mortgage approvals remaining flat, points to underlying weakness in the housing market
  • Consumer squeeze is set to continue for some time yet

“Today’s lending figures were much worse than expected, particularly as the Bank of England's latest Credit Conditions Survey reported that lending to households had increased significantly.

However, the survey showed that interest rate spreads on loans to households had widened, so this weakness is most likely down to the lack of credit demand.

“August's fall in secured lending, coupled with mortgage approvals remaining flat, points to underlying weakness in the housing market. The fundamentals underpinning the housing market are still unsupportive. Despite the recent improvement in the labour market, consumers are facing immense pressure in the face of declining real incomes and high levels of indebtedness. As such we expect house prices to continue falling in the months ahead.

“The second consecutive decline in consumer credit is also disappointing. Inflation had been expected to continue its rapid descent over the second half of 2012, improving the outlook for consumers’ real incomes. However with oil prices remaining stubbornly high and recent utility price hikes, it seems likely that inflation will level off above 2% over the coming months. The consumer squeeze is set to continue for some time yet.”