What the money numbers are saying

The amount of cash circulating around the system ultimately determines how many new things are made and sold, and what they’ll cost. Today’s news from the Bank of England on the UK money front isn’t good. In fact, it’s quite scary.

The politicians may be urging bankers to lend out more, or even to redirect their bonus payments into larger advances to customers. But this simply isn’t happening. The banks have made far too many mistakes in lending to the wrong people who can’t repay what they’ve borrowed. So they’re hoarding much of the rest of their cash.

Lending on houses increased at just 0.8% year-on-year in the 12 months to September. That’s down from +1.2% in the year to June and +10% in 2007. Consumer credit is growing at 0.5% annualised. This time in 2008, it was expanding at 6% year-on-year. Four years ago, we’re talking about near 12% annualised growth.

It’s a dramatic slowdown, showing just how hard consumers are battening down the hatches. And with a looming mix of slashed public sector spending, higher taxes and many more job losses, it’s more likely to get worse than better.

Meanwhile, business borrowing is falling off a cliff. Lending to ‘non-financial corporations’ – firms that make and sell things – is shrinking at its fastest, -14% annualised, since Bank records began in 1997.

That’s partly because some companies have cashed in on the surging stock market by selling new shares to investors. But that window of opportunity could be about to shut. As we point out in today’s Money Morning, the stock market looks set to tumble, which would make share selling much harder. And if business needs to rely on the bank again, the latest evidence suggests the vaults could be firmly closed.

It all points to some very gloomy times to come for the economy. And note this too – the value of all mortgage approvals in September was 20% down on last year, compared with just -13% year-on-year in August. So any supposed rebound in the housing market – whatever the estate agents are saying – is almost certainly built on sand.