Head of Macro Analysis, Saxo Bank Group
Summary: UK credit impulse is heading lower, signalling a troubling growth outlook.
Following the release of updated Bank of International Settlements credit data, our in-house credit impulse for the UK is running at -2.2% of GDP, one of the weakest levels seen in developed countries. Data for previous quarters have been revised downward, leading to a deeper contraction in the credit impulse than preliminary data suggested.
UK credit impulse has experienced its biggest quarterly drop since the GFC in Q1 2018, evolving at -7.5% of GDP due to Brexit uncertainty and deteriorating credit conditions. We can see very well in the chart below that the negative trend in new credit flow started at the same time as the 2016 referendum and accelerated as difficulties finding a middle -ground between the UK and the EU-27 appeared.
As we have mentioned many times in previous analyses, the UK’s top issue is the lack of new credit growth as that is the main driver of economic activity. As household consumption is also fading, the growth outlook for the country is deteriorating very fast, a trend that should remain in place for at least the next six to nine months.
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