Net consumer credit hits record low

British consumers repaid the highest amount of unsecured credit on record in October, reducing their debt at twice the rate economists had expected, Bank of England data showed on Monday.

Net consumer credit fell for the fourth straight month in October, dropping by 579 million pounds in October after a 299 million pound decline the month before. That was the biggest fall since records began in April 1993 and compared with analysts' expectations of a 200 million pound fall.

After a decade of easy credit and rising personal debt levels, Britons are paying the price of their borrowing binge as they suffer the longest recession in over 50 years.

Net mortgage lending, however, continued to rise, increasing by 922 million pounds. That was roughly in line with expectations and follows a similar 898 million pound increase in September but is a tiny fraction of the volumes in the boom years up to mid-2007.

Mortgage approvals also rose in line with expectations to 57,345 in October after a 56,205 rise the previous month. That was the highest since March 2008, but is well below average levels of around 85,000 a month during the years of rapid house price rises.

"Approvals continued to inch higher, suggesting there is some improvement in underlying activity, but levels remain very depressed" said David Page, economist at Investec.

Broad money supply, M4, rose by 1.6 percent in October, the biggest monthly increase since January. But the Bank of England's preferred measure, M4 excluding intermediate other financial corporations, dropped by 0.7 percent on the month and by 5.3 percent on three-monthly annualised rate.

That will cast further doubt on the effectiveness of the central bank's 200 billion pound quantitative easing policy, which many had expected to raise money holdings outside the financial sector and thereby stimulate economic growth. 

"The underlying position looks weak" said Ross Walker, economist at Royal Bank of Scotland. "There's not much evidence that QE is boosting those real economy money and credit aggregates. If it is working, it's through financial sector channels rather than through households and non-financial companies."

Bank policymakers have argued that the policy of buying assets - mostly gilts - with newly created money is working well in that it has raised the price of those assets and brought down borrowing costs for large companies.