Tuesday, July 21, 2009

BOE Reports Weak Mortgage Demand, Foreign Capital Outflows

In it's monthly report chronicling the wounded-calf-like state of the British lending establishment, the Bank of England indicated that flows of net mortgage lending, in May, reached the lowest level ever recorded in the modern era of data collection (that would be 1993 for the BOE). In a positive twist, the BOE did report that major UK lenders have been lowering their credit standards as of recent. In all seriousness though, the UK is basically the US - minus of course the cheap reserve currency. Therefore, it shouldn't come as a surprise that the BOE's report would contain some difficult (if you're British) to swallow data points.

The most dismal section of the report can be found on pg5 of the pdf below, specifically Chart 1.1 "Contributions to growth in lending to UK businesses". This chart contains nothing that could even remotely be spun as "green-shootish", as the flow of capital away from UK businesses appears to be accelerating. The trend is most pronounced as it relates to the direction of flows of foreign capital, a source of funds that is literally fleeing the island. This new trend is of an especially aggravating nature for UK businesses, as Chart 1.1 illustrates the fact that in the final stages of the debt bubble, businesses within the UK relied on foreign-owned Inflows for almost half of all new growth.

In short, if we could create a new word, designed to convey a stronger feeling of bearishness than the word "bearish" itself, we would use that word to describe our short,medium, and long term investment sentiment towards the UK economy.

*no position in the UK.

BOETrends in Lending July09 Sphere: Related Content

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