Some interesting charts have crossed my desk over the last few weeks which reaffirm what we have been expecting – the UK economy is performing well and the concerns about the growth outlook and debt accumulation are misplaced.
Much has been written over the summer about the consumer debt burden and its implications for future monetary policy and growth. We are less concerned about this, partly as a result of the low interest rate environment which we expect to prevail for some time. The recent inflation data, and the Bank of England’s response to it, don’t change this view. Clearly, the probability of an interest rate increase in the near future has increased but this does not, in our view, herald the start of meaningfully tighter monetary policy. Indeed, the stronger pound that has greeted the recent policy rhetoric, ironically does much to counter the inflationary forces that prompted the talk of rate hikes in the first place.
We believe consumer debt levels are manageable in the context of household incomes. Furthermore, as the chart below illustrates, it is evident that the growth in debt that we have been seeing over the last eighteen months hasn’t really been the result of a pick-up in consumer borrowing – it is corporate borrowers that have been taking advantage of the renewed appetite for lending in the UK banking sector.