LONDON (Reuters) - Mortgage lending rose by its lowest amount on record in May and measures of the growth of money in the economy remained weak, official data showed on Monday, in a sign economic recovery may take some time.
Money supply figures from the Bank of England showed its unprecedented 125 billion pound asset-buying programme may still not yet be having a significant impact on credit flows — a key risk to the economy’s chances of rebounding out of recession.
The BoE said mortgage lending rose by just 324 million pounds in May, a third of the increase in April and a tenth of that a year ago. It was the weakest increase since comparable records began in April 1993.
Mortgage approvals — loans agreed but not yet made — numbered 43,414 in May, just up from 43,191 in April, weaker than analysts’ forecasts for a reading of 46,000 and pointing to further house price falls ahead.
“Disappointing,” said Philip Shaw, chief economist at Investec. “It’s a reminder that the economy in general is still very sensitive to developments in the financial system and highly dependent on credit.”
There have been signs that the economy is already emerging from a steep recession but economists and policymakers alike have cautioned that any recovery could be slow and uneven because banks are still unwilling to pump loans into the economy.
The annual fall in house prices in England and Wales slowed for a third consecutive month in June, according to property data company Hometrack, but prices were still 8.7 percent lower than a year ago.
The BoE has slashed interest rates to a record low of 0.5 percent and is using newly-created cash to buy billions of pounds’ worth of gilts and other assets in an effort to kickstart lending and economic growth.
BoE policymakers have said there were some early signs its quantitative easing programme was starting to work its way through the economy, but these latest figures may disappoint them.
The BoE’s preferred measure of broad money supply growth, which excludes other financial corporations, was unchanged on the month after a 0.1 percent rise in April — as firms continue to pay down debt rather than invest.
On the same month a year ago, it was 2.0 percent higher in May, down from 2.4 percent in April.
“With the recovery in the wider economy still looking pretty credit-less, we doubt that it will gather significant momentum,” said Vicky Redwood, an economist at Capital Economics.
Separately, the BoE published notes of a meeting of economists from markets, the public sector and academia in which participants agreed that the short-term prospects for the economy had improved but the outlook beyond that remained uncertain.
“Some participants thought that there could be a period of protracted weakness for the UK economy, given the combination of high debt levels and the potential for deflation,” the notes said.
“Others were sceptical, reiterating that the chance of deflation in the United Kingdom was small.”
A survey from the Confederation of British Industry and accountants PricewaterhouseCoopers showed financial service companies were more upbeat about the future than at any time in the last two years although banks remain wary.
Editing by Mike Peacock and Andy Bruce