UK gov't fails to get people to spend

To keep the Ponzi scheme going they have to have credit and increasing levels of debt. The people, however are paying off debt.

Government scheme fails to boost lending in first month

Attempts by the authorities to boost the supply of credit have failed in the first month of trying, economists said, after official data showed that borrowers repaid their debts last month and rates continued to rise.

The Telegraph,

1 October, 2012

In the first full month that the Funding for Lending Scheme (FLS) was operating, households repaid £276m of mortgage debt and cleared another £134m of personal loans. Lending to businesses dropped by £2.2bn, the largest monthly decline since February.

The figures, from the Bank of England, also showed that the average fixed mortgage rate rose by 0.03 percentage points in August and is now 0.52 percentage points higher than at the start of the year.

Michael Saunders, UK economist at Citi, said: “The data suggest that the introduction of the FLS has not produced significant immediate results in improving the growth or price of credit to households and businesses.”

The Bank and the Treasury launched FLS, which provides banks state-backed low-cost funding, on August 1 in an attempt reduce borrowing costs for households and businesses and increase lending. Capital Economics said that “while it is still early days, [it] has yet to make a sizeable impact”.

Last week, the Bank revealed that 13 lenders had signed up to the scheme, qualifying for about £60bn of cheap funding. Royal Bank of Scotland and Lloyds Banking Group have each tapped it for £1bn and the benefits are expected to start coming through over the next few months.

However, the Bank’s data suggest that there is little demand for credit currently, which would limit the impact the scheme would have on restoring economic growth.

Last week, the Bank’s credit conditions survey found that lenders had “significantly” increased the supply of mortgages in the three months to September, particularly to fist-time buyers, but demand had been weak. It’s official figures for August showed that mortgage approvals were weak, increasing from 47,556 in July to 47,665 against forecasts of about 49,000.

Some economists pointed out that behaviour in the month may have been distorted by the Olympics.

The drop in unsecured consumer borrowing was the second month of repayment in a row, following £234m in July. The net mortgage repayment was the second in the past three months and the steepest since December 2010.

“The Bank of England data indicate that consumers appetite for new taking on new borrowing is limited while there is also an ongoing strong desire of many consumers to reduce their debt,” Howard Archer, IHS Global Insight UK economist, said.

The weak lending data came as property research group Hometrack revealed that house prices fell 0.1pc in September on weak demand – the third months in a row – and that the market could come under further pressure as the uncertain economic outlook undermines consumer confidence.