In putting together its relatively upbeat August Inflation Report projections for the UK economy the MPC made two key assumptions. First, it assumed that there would be a smooth adjustment to a new set of trading arrangements following the UK’s departure from the EU next March. Second, it assumed that the UK household saving ratio would remain close to an all-time low. The risks around both of these judgments lie in one direction, and that is to the downside. Last year lenders came under pressure from the Bank of England’s Financial Policy Committee to reduce the risks to their loan books from rapid rates of growth in unsecured credit. Against that backdrop, we at Fathom expected to see an increase in the UK household saving ratio through this year. Last week’s money and credit data showed that unsecured lending to individuals slowed sharply in July. For the second time this year, the data were significantly weaker than expected, perhaps suggesting that household savings are indeed set to rise.
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