Household borrowing supported economic growth last year but it might not continue to do so, next week’s numbers might show.
As part of the third estimate of GDP data on Thursday, the ONS is likely to say that households were net borrowers last year, because spending on house-buying exceeded aggregate savings. This is a big reason why consumer spending held up last year in the face of falling real wages.
There are, however, signs that this borrowing is slowing down in 2018. Bank of England data on Thursday could show that consumer credit growth is falling – although it remains strong at over 9 per cent year on year. Consistent with this, the CBI might say on Wednesday that retail sales growth has slowed recently – although if retailers’ expectations last month are correct, growth will have picked up a little this month.
News from the housing market, however, might be mixed. Thursday’s Bank of England data will tell us whether last month’s strong rise in mortgage approvals was a blip or not. Whether it was or not, the Nationwide is likely to report that it hasn’t yet pushed up house prices. It is expected to say that these have been more or less flat since the summer.
Any retrenchment by households would be especially concerning because there’s little sign of companies picking up their spending to take up the slack. The ONS is likely to say that their net borrowing fell last year, and the Bank of England is expected to say that companies borrowing from banks has fallen in the last 12 months while their cash holdings are still growing strongly. This reflects a reluctance to invest despite decent growth in profits.
Overseas, we should see signs of continued growth. In the US, the Conference Board should say that consumer confidence remains at or around an 18-year high. In Japan, we should see a big recovery in industrial production after January’s fall. And in the eurozone, the ECB could report that bank lending is accelerating slightly while narrow money growth remains strong at around 9 per cent. Both point to economic activity staying healthy for a while.
All this news, however, poses a puzzle for the UK: given the strength of overseas activity, why are we still running a big external deficit? Thursday’s figures should show that the UK’s current account deficit was around £23bn (4.5 per cent of GDP) in the fourth quarter. This isn’t a problem for now, but it might become one if foreign demand for UK assets wanes.
