Deleveraging in action, Bank of England edition

September 1, 2009

Ever since branches started forming outside Northern Rock branches two years ago, British consumers have been told they have way too much debt. They finally appear to be paying attention. Bank of England data released today shows net lending to individuals fell by £600m between June and July. Nothing surprising there, you might say. Surely it’s only normal that people are paying back their debts. Except that this is the first drop since the Bank started recording monthly data back in 1993. Or, as the Bank’s statisticians put it:

Total net lending to individuals fell by £0.6 billion in July, showing a net repayment for the first time in the series.

For most of the past two years, the net lending figures have been falling. But they had not turned negative, until now. The question is whether this is a one-month blip or the beginning of a trend. Certainly, the drop in mortgage lending is at odds with other recent figures. Also in July, according to the British Bankers Association, the number of mortgage applications that have been approved rose to their highest level for a year and a half. The question is whether those new borrowers will compensate for the people who have decided it is high time they paid off some debt. Watch this space.

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