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Credit Conditions Survey – Steady as she goes

12 July 2018 by Eoin Walsh

The Bank of England Credit Conditions Survey for Q2 2018 was released this morning, and overall the tone was more positive than reported last quarter, supporting the more upbeat rhetoric coming from Monetary Policy Committee (MPC) members recently.

The area that caused the most concern in the Q1 report was the big drop in availability of unsecured credit to households; however, availability was unchanged in Q2, thanks in particular to a change in appetite for risk from lenders, and also an improvement in market share objectives. However, lenders are remaining cautious and credit scoring criteria for other unsecured loans did become significantly harder, although approved applications only fell slightly and the proportion of credit card loan approvals was reported to have improved significantly.  On the demand side of the equation, the report showed demand for unsecured credit was unchanged, so overall, it appears that the picture for unsecured credit has improved over the quarter.

The survey also reported that availability of credit provided to small businesses increased in Q2, the first such increase since Q3 2015, while the overall availability of credit to the corporate sector was unchanged. Lenders also reported a significant increase in demand for corporate lending from small businesses, while medium and large businesses reported unchanged and slightly decreased demand respectively.  Availability of secured credit to households was unchanged.

As regards pricing, spreads on secured lending to households narrowed significantly, for the 6th consecutive quarter, while unsecured lending spreads also tightened; although the interest free periods for balance transfers on credit cards decreased significantly again in Q2. In terms of defaults, the picture was fairly unchanged for corporates and slightly better for secured loans to households. The trend for increasing defaults in unsecured lending continued and credit card defaults did spike higher, which will need to be monitored; however lenders are well protected by the rates charged.

Overall, the survey probably had more good news than bad for the UK economy; lenders remain cautious on unsecured borrowers although approved more credit card loans, while the increase in demand for credit from small business suggests that confidence has improved in that sector.  Food for thought for the MPC when considering the strength of the economy.

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