Press release

16 Jan 2020 London, GB

Bank of England credit conditions survey shows businesses and consumers are cautious with reduced lending in fourth quarter of 2019

The Bank of England’s credit conditions survey unsurprisingly indicates that businesses and consumers were cautious in their borrowing and banks in their lending in the fourth quarter of 2019 as they faced heightened uncertainties (particularly on the domestic political and Brexit fronts) as well as a struggling economy.

Press contact

EY UK

Multidisciplinary professional services organisation

Related topics Growth
  • The Bank of England’s credit conditions survey unsurprisingly indicates that businesses and consumers were cautious in their borrowing and banks in their lending in the fourth quarter of 2019 as they faced heightened uncertainties (particularly on the domestic political and Brexit fronts) as well as a struggling economy.
  • The balance for the overall amount of credit made available to corporates fell to -9.2 in the fourth quarter of 2019 from -3.5 in the third quarter and -1.2 in the second quarter, which took it down to its lowest level since the fourth quarter of 2008. There was particular weakness in credit made available to the commercial real estate sector.
  • Banks made less unsecured credit available to households in the fourth quarter; however, they did lift credit available for mortgages which was reported to have been driven by market share objectives. In addition to limiting their lending overall, banks further tightened their lending standards in the fourth quarter of 2019 for unsecured consumer credit.
  • Business demand for borrowing was reported to have fallen across all corporate sizes in the fourth quarter, pointing to caution over investment and committing to major projects.
  • There was reduced consumer demand for unsecured credit, both borrowing on credit cards and on other loans.
  • Mortgage demand for house purchases was reported to have decreased in the fourth quarter, but there was sharply increased demand for re-mortgaging.
  • Looking ahead, banks appear to be retaining a cautious approach in their lending; available credit to corporates is expected to decrease slightly in the first quarter of 2020. Credit available for mortgages is also expected to decrease in the first quarter while it is expected to be unchanged for unsecured consumer borrowing.
  • There is expected to be a further tightening in lending standards for unsecured consumer credit.
  • On the demand side, there is expected ongoing overall caution on the business side although it is mixed across sectors – with demand for credit expected to pick up slightly from small businesses, but decrease for medium and larger firms.
  • The survey shows that demand for credit for business investment is expected to fall sharply in the first quarter of 2020.
  • On the consumer side, demand for mortgages for house purchases is expected to decrease in the first quarter of 2020. This is at odds with initial signs that the housing market may get at least a near-term boost from the reduced uncertainties. The December RICS survey indicated a pick-up in buyer enquiries as did an initial report from Rightmove after the General Election.
  • There is expected to be a pick-up in demand for credit card lending while demand for other unsecured loans is expected to be unchanged.
  • The survey raises serious question marks as to whether there is likely to be an early pick-up in business investment and willingness to commit to major projects despite reduced near-term uncertainties following December’s decisive General Election result and now certain UK exit from the EU on 31 January with Boris Johnson’s deal.
  • It also casts doubt as to whether the housing market will get at least a near-term boost from the reduced uncertainties.
  • However, it does suggest that consumers may be more active in the early months of 2020 after showing increased caution late on in 2019.
  • The credit conditions survey is likely to do little to dilute concerns with the Bank of England’s Monetary Policy Committee about whether the economy will quickly see a marked pick-up in economic activity following the decisive General Election result and greater near-term clarity on Brexit.
  • As such, it still looks to be on a knife edge as to whether the Bank of England will cut interest rates from 0.75% to 0.50% on 30 January after the first MPC meeting of the year. Two members voted for an interest rate cut in December (Michael Saunders and Jonathan Haskel) while Mark Carney, Silvana Tenreyro and Gertjan Vlieghe all indicating that they could vote for a cut in the near-term should the economy not show signs of quickly picking up after the General Election result.   

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“The Bank of England’s credit conditions survey showed that the overall amount of credit made available to the corporate sector fell for a sixth successive quarter in the fourth quarter of 2019 and at the fastest rate since the fourth quarter of 2008. Specifically, the balance weakened to -9.2 from -3.5 in the third quarter and -1.3 in the second quarter.

“There was a particular reluctance to make credit available to the commercial real estate sector.

“Credit made available to small companies was little changed, but there was clearly reduced credit made available to medium and large companies.

“Demand for credit from small businesses fell at a sharply increased rate in the fourth quarter (balance down to -19.0 from -5.3 in the third quarter), as it did for large companies (down to -18.9 from -7.5). Demand for credit from medium-sized companies also fell markedly, albeit at a reduced rate (balance up to -15.4 from -23.0).

“Demand for credit for corporate investment fell again in the fourth quarter, with the balance dipping to -15.3 from -14.9 in the third quarter and -6.0 in the second quarter.

“The survey shows that demand for credit for business investment is expected to fall sharply in the first quarter of 2020. Specifically, the balance for expected demand for credit for capital investment over the next three months fell to -27.4 (the weakest since the first quarter of 2009) from -18.5 in the previous survey.

“Demand for lending from small businesses is expected to pick up in the first quarter of 2020, but it is expected to fall at an increased rate from medium-sized and larger firms.

“Meanwhile, banks expect to make less credit available to the corporate sector in the first quarter of 2020. The balance stood at -7.6, although this was an improvement on -13.5 in the previous survey.

Housing market

“The credit conditions survey reported a marked increase in the availability for mortgage lending in the fourth quarter of 2019, although it is expected to weaken in the first quarter of 2020.

“Demand for credit for house purchases was reported to have fallen markedly in the fourth quarter of 2019. The balance weakened to -12.7 from +12.5 in the third quarter. However, there was a pick-up in demand for re-mortgaging (the balance jumped to +19.5 from -12.2 in the third quarter).

“Demand for credit for house purchases is seen falling further in the first quarter of 2020 with the balance down to -14.3. This is at odds with some recent survey evidence that there has been an initial pick-up in buyer interest in the housing market following the decisive General Election result.

“Demand for re-mortgaging is seen falling back appreciably in the first quarter of 2020.

Unsecured consumer credit

“The credit conditions survey reported that the availability of unsecured consumer credit fell for a 12th successive quarter in the fourth quarter of 2019. Albeit at a slightly slower rate; the balance rose to -6.7 from -8.0 in the third quarter.

“It is seen falling modestly further in the first quarter of 2020, with a balance of -2.9.

“Lenders also further tightened their lending standards for unsecured consumer credit. The balance stood at -19.5, which represented a 13th successive quarter of tightening lending standards and was up from -15.9 in the third quarter and -10.3 in the second quarter (a negative reading indicates a tightening of lending standards).

“Lenders expect to further tighten lending standards in the first quarter of 2020; balance at -18.2.

“Demand for unsecured lending from consumers was reported to have fallen at a faster rate in the fourth quarter of 2019 with the balance down to -13.3 from -7.4 in the second quarter. Demand for both credit card lending and unsecured loans fell in the fourth quarter.

“Demand for unsecured consumer credit is seen picking up in the first quarter of 2020, with the balance at +11.8, the highest since the second quarter of 2018. This is entirely due to an expected pick-up in credit card borrowing (balance at +14.3). Demand for unsecured loans is seen falling modestly (balance at -1.5).”