How is Business Finance DOWN when GDP and House prices are UP

3073105916_1228932657-resized-600Business Finance still falling

The Bank of England’s latest Trends in Lending survey released last week shows that business funding fell by some £4.3bn in the three months to November 2013.  Whilst the decline was less than in the corresponding three months in 2012 – it was still a significant drop in net lending, and a massive fall on the previous three months to August 2013 when the drop was just £2.3bn.

The fall in November alone was £3.7bn.

Mortgage Lending increasing

At the same time the Bank and a separate survey from the Council of Mortgage Lenders reported that mortgage lending was at its highest levels since 2008.

Mortgage lending was approximately £17bn in December, nearly 50% higher than for December 2012.  Gross lending in the fourth quarter of 2012 was the highest since the third quarter of 2008.

What is the Bank of England doing about it?

The Governor of the Bank seems to have recognised this lack of balance and in November of 2013 he announced that mortgage lending was being dropped from the Funding for Lending scheme from the beginning of 1014. Other tools to stop the house prices getting out of hand have been threatened.

I have commented on this issue in previous blogs, first in May 2013, when we raised the potential for a new house price bubble,  and then again in September 2013 when commenting on how the Funding for Lending scheme (mortgages) and the Help to Buy scheme had miraculously saved the economy…….


GDP Growth zooms ahead

…… It has just been announced that GDP Growth for 2013 was the strongest since 2007.  In the final three months of the year Gross Domestic Product rose by 0.7 percent meaning that there was growth in each quarter of the calendar year for the first time since 2010.

This surge in the last quarter meant GDP for the year was a comparatively very healthy 1.9%.  The main driver of this increase in growth was the Services sector and there are continued concerns about the lack of balance in the Turnaround of the UK economy.

To put this in context, the Services sector is now 1.3% larger than it was in the first quarter of 2008 (before the crisis hit), whereas the Manufacturing sector is 8.2% below pre-recession levels and Construction is down by some 11.2 %.

The big concern of economists is that the turnaround of the economy is too heavily biased towards the supply side, and it is predominantly consumer driven.


Is some Growth better than no Growth

I sometimes struggle to understand how many of these commentators view the alternative.  I would like to think it is a given that some growth is better than no growth.  Lest we forget, it is exactly 54 weeks ago, just before the release of the GDP numbers for third quarter 2012, that the media and many of these same commentators were bewailing the fact that we were just about to enter a triple dip recession!


If we don’t consume the product here in the UK, the demand has to come from overseas.  For the avoidance of any doubt, the rest of the world is not fantastically buoyant at the moment, especially our main customers in Europe.

If the growth doesn’t come from the consumer feeling a bit better about stuff because the government has engineered a rise in house prices through FLS, Help to Buy and a lack of new builds, where is it going to come from?  The price of globalisation, is that you can’t devalue and export your way out of recession as we have done in the past.

If only we could free up business finance….

If you have any comments on this article or would like to discuss any aspect of it please contact me at or on 0845 689 8750.

John Thompson is Managing Director and founder of Trans Capital Associates

Image by: State Library of New South Wales collection